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Double DMC payments deserve attention

If you haven’t signed up for the Dairy Margin Coverage (DMC) program for 2023, you may want to rethink that position. That’s because dairy markets continue to be among the most volatile in all of agriculture.

Even though pay prices on milk checks still start with a “2,” margins on making that milk continue to shrink due to the high cost of feed. Indeed, feed costs and inflation just may pose the biggest threat to milk check revenue in the upcoming year . . . especially if the economy slips into a recession due to interest rate counter measures aimed at bringing down inflation.

What goes up always comes down. On the revenue side of the DMC equation, the All-Milk price started 2022 in the $24 range and quickly approached $26 by March. Then it climbed to a $27 per hundredweight (cwt.) zenith in April and May before slipping slightly to $26.90 in June. July milk checks netted a $25.70 All-Milk price and then fell to the mid-$24.50 range in August and September. To be certain, we likely have seen the best milk prices in this business cycle.

While milk prices have climbed a roller coaster track and fell down the next slope slightly, the feed cost equation triggered DMC payments. That’s because feed prices have kept moving upward. Premium alfalfa hay has been the most dramatic example. In January, dairy quality alfalfa started at $262 per ton and moved up every month. As drought conditions set in for the Western states, Premium alfalfa hay shot up to $333 per ton by July and then peaked at $343 in August. September’s $342 per ton, just $1 off August, represented the only time hay prices slipped any monetary amount this year in the DMC equation.

Corn and soybean prices also started the year at low points of $5.57 and $12.66 per bushel, respectively. Both climbed steadily into the summer and peaked at $7.37 (June corn) and $16.22 (August soybeans). While off those peaks now, twin energy and protein concentrate sources remained near historical highs.

This all means that risk mitigation is more paramount than ever.

If you want to reconsider your decision on DMC, you have until December 9 to complete the paperwork for the 2023 calendar year at your nearest USDA Farm Service Agency.

Corey Geiger

November 23, 2022

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