The Agriculture Improvement Act of 2018, also known as the farm bill, supports America’s farmers, ranchers, and forest stewards through several programs. The Dairy Margin Coverage (DMC) program is one of the safety net programs included in the farm bill. On January 13, 2025, the Farm Service Agency announced that the enrollment period for the 2025 DMC will be open January 29 to March 31. This opening should put dairy farmers in a decision-making mode, provided they want to protect their business against adverse financial scenarios.
In addition to choosing how much of their total production they should protect (i.e. 5% to 95% of their annual production), dairy farmers must decide what level of coverage they want, and this can be a hard decision to make. To gain some insight, let’s see what happened in previous years.
The table below reports the annual payments in dollars per hundredweight ($/cwt.) from DMC over the years according to the coverage levels ranging from $4 to $9.50 per cwt. Farmers in Tier 1 that chose a $9.50 per cwt. coverage paid a premium of $0.150 per cwt. over the last six years and received average annual payments of $1.171 per cwt., meaning that taking full coverage from DMC was beneficial. Similarly, farmers in Tier 1 who chose a $7.50 per cwt. coverage paid a premium of $0.09 per cwt. over the last six years and received average annual payments of $0.439 per cwt., which was also beneficial. Finally, farmers in Tier 1 that chose a $4.50 per cwt. coverage paid a premium of $0.0025 per cwt. over the last six years and received average annual payments of $0.025 per cwt., which also reflect a positive balance.
This analysis highlights that DMC has been a favorable tool to buffer the drop in margins over the last six years. It is worth highlighting, however, that looking at the ratio between the premium paid and the payment received might not be the best analysis. After all, the indemnity or payment will help farmers sustain their businesses. While the $4.50 per cwt. coverage seemed to provide a net indemnity of $0.0225 per cwt., the $9.50 per cwt. coverage provided a net indemnity of $1.021 per cwt. The latter is indemnity money that will help keep the business running.
In summary, the DMC program has proven beneficial to dairy farmers, and going for full coverage seems to be a valuable alternative to sustain the business. If you are interested in learning more about DMC, I invite readers to watch an educational video that our extension program prepared with the support of the Southern Extension Risk Management Education Program.
