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Dairy Margin Coverage Payments Triggered for Tenth Month in a Row

Karen Bohnert

December 1, 2021

Ten for ten, USDA’s ag Prices report announced yesterday afternoon that the October 2021 Dairy Margin Coverage (DMC) income over feed costs resulted in $8.77/cwt. This resulted in ten out of ten, that being ten months in a row that DMC payments have been triggered. This results in insurance payments for milk covered at $9.00 and $9.50 levels.

Each 1 million pounds insured at the $9.50 level will receive $576.63 before appropriation. Year-to-date each 1 million pounds covered at $9.50 will have been paid more than $23,000.

The USDA all-milk price equated to $19.70/cwt, an increase of $1.30 over last month. Although hay price was $230/ton, $3.50 higher than September. Corn was down $0.43 to $5.02/bu. and soybean meal was also down $18.12 resulting in $325.43/ton.

Year-to-date DMC Payments

Through November 1, more than $1 billion has been issued in DMC indemnity payments, primarily representing payments for January-August milk. Also, more than 25,000 dairy operations with established DMC milk production history this year, 6,222 have not enrolled for the 2021 DMC program. Year-to-date payments across all participating dairies averaged $56,726.

USDA has still not announced the changes to be made to the hay price calculation use in DMC feed cost calculations, nor when any adjusted indemnity payments retroactive to January 2020 will be distributed. Also, there has been no announcement regarding when the enrollment dates for 2022 coverage will begin.

Shaping Up for 2022

Prevailing milk and grain futures prices suggest producers will see improved income over feed margins in 2022. According to Phil Plourd, president of Blimling and Associates, Inc., the DMC model had 2022 at close to $9.75/cwt compared to $7.05 for 2021 and $8.75 over the last five years.

“Of course, unless producers are securing hedge coverage, ‘prevailing’ is not the same thing as “realized,” Plourd says.

Noting that things are especially volatile out there on both the milk and feed sides of the equation, Plourd says it appears that dairy product prices are on solid ground for the near term, as the pandemic continues to deliver new twists and turns.

The 2022 Class III and Class IV are in the top third of the historical price frequency distribution at $18.75 and $19.12 per hundredweight, respectively.

Plourd says as far as feed goes, it could be a white-knuckle ride into planting season as markets assess planting prospects in environment featuring tight supplies and soaring prices for fertilizer.

“We’ve also been thinking a lot about non-feed costs,” says Plourd. “It’s nice to see income over feed prospects improve. But dairy producers are also seeing a lot of cost inflation beyond the feed bunk, such as labor, materials, and transportation. Everything costs more.”

Bottom line, 2022 is shaping up to be a better year than 2021 for U.S. dairy farmers, says Plourd. “But the situation feels more tenuous than usual,” he states.

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