DMC protection still makes sense for 2022
Abby Bauer, Senior Associate Editor
January 31, 2022
Dairy economists are optimistic about dairy prices for 2022, and Cornell University’s Chris Wolf shared those sentiments during a Center for Dairy Excellence “Protecting your profits” webinar.
“This looks to be the highest farm milk price year since 2014,” the professor of agricultural economics said, “but there are many sources of uncertainty. This is the most uncertain year I can recall.”
For that reason, he suggested farms strongly consider signing up for the Dairy Margin Coverage (DMC) program for 2022 prior to the February 18 deadline.
“At the current time, the forecast is essentially for no payments in 2022 given the current strength in the milk market, even though feed is expensive,” Wolf shared. However, he noted that over the life of the program, DMC has been net positive in all years except 2014. Payments were made in 63% of all months since the program began, with an average indemnity payment of $1.04 per hundredweight.
“We’ve got really healthy margins over feed costs predicted this year, but there is some downside on milk price, especially on Class III, and I think there might be some upside on feed, depending on what happens with trade, fertilizer prices, and acres planted,” he said.
His recommendation, then, is for farms to sign up at the $9.50 level. “I am not telling you what you should do, but if that program works for you, I would really consider it for 2022,” he said.
A few changes
Wolf pointed out a few changes that were made to the DMC program. The first is that the Supreme alfalfa price will be used in calculations to better reflect prices for dairy quality hay. He said that makes feed expenses higher on average, which is good as it is more likely to trigger a payment.
Another change is the opportunity for farms to raise their historic milk production if they have grown since first signing up for the program in 2014. Eligible dairy operations with less than 5 million pounds of established production can increase their base according to a formula that uses 2019 actual milk marketed. Seventy five percent of the difference between 2019 actual milk marketed and previous production history will be added to the old production history to create a new production history up to 5 million pounds.
Wolf said producers would need to pay additional premiums on the expanded production history, but they will receive retroactive payments on their 2021 coverage. Again, the deadline to sign up for DMC for 2022 is February 18.