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2020 taught risk management lessons for 2021

Chris Galen and Paul Bleiberg, National Milk Producers Federation

Dairy farmers have become accustomed to operating in an environment of “reasonable uncertainty.” However, the COVID-19 crisis has made 2020 prices especially volatile for the industry.

Two dairy programs have proven critical for producers navigating the pandemic: The Dairy Margin Coverage program (DMC), a risk management tool for dairy producers not specific to COVID-19, and the Coronavirus Food Assistance Program (CFAP), a program designed as a direct response to the effects of coronavirus on American agriculture.

With the December 11 enrollment deadline for both programs quickly approaching, producers across the nation must decide how to best prepare themselves to take on 2021 and beyond, using lessons learned from 2020 to make strategic decisions best for their individual operations.

One key lesson from 2020 is the power of DMC to support farmers across a variety of circumstances.

The chart below examines how DMC paid out at different levels of enrollment. Note that all dairy operations can enroll up to 5 million pounds of their milk production history on a sliding scale from $4 to $9.50 per hundredweight (cwt.). DMC provided four payments at the maximum $9.50 level in 2020, with the largest ones in the spring when economic conditions were at their worst. Farms insured at $9.50, in return for their 15 cents per cwt. premium, received an average payment of 67 cents per cwt. on their production history — a return on investment that proved the effectiveness of DMC as a risk management tool.

This year also taught the hard lesson that the unimaginable is possible.

Last December, when forecasts showed that DMC wasn’t expected to pay out in 2020, many producers didn’t sign up. None of us knew that the coronavirus pandemic was on the horizon — and the result was a lost opportunity for support when times got bad.

DMC proved vital for dairy farmers across the nation as they did their best to survive during a global pandemic, the likes of which no one has ever seen. DMC was able to provide such crucial support because it was already in place when the pandemic hit, and it paid out based on the facts on the ground, however unimaginable they may have been just a year ago.

December 11 is the deadline for both CFAP and DMC enrollment for 2021. Next year promises more uncertainty; coronavirus cases are spiking and another COVID-19 response package is far from complete. As demonstrated by the payments it made in both 2019 and 2020, DMC is a reliable tool to help dairy farmers operate through the uncertainty of future years.

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