How Much Extra Money Will Be Received Under DMC?
December 17, 2021
There may be some confusion over the amount of money that may be received under the Dairy Margin Coverage (DMC) program due to the change in the income over feed calculation. Eligible producers that have already been in the program will receive a total of $3.19 per cwt due to the change of the blend of alfalfa hay and supreme/premium hay to only the price of supreme/premium hay going forward. This is not an additional $3.19 per cwt for your production for each of the month during which payments were received retroactive to January 2020. Logically, the change of the hay calculation would not have reduced income over feed by $3.19 per month as the difference of hay prices is generally about $25 per ton. I had stated in my article that it would be an average of 20 1/2 cents per cwt for milk that was sold each of those months and going forward from here.
From January 2020 through October 2021, there were 15 months in which there were DMC payments for those who chose the $9.50 level. To put what will be received in perspective, I will use the example of payments that will be received over the five months of 2020 if the $9.50 level was chosen, and the farm produced 5 million pounds of milk for the year. For March 2020, the increase of payment using the premium/supreme hay price rather than the blend price, resulted in an increase of 20 cents per cwt. Production of 5 million pounds for the year would be approximately 4,167 hundredweights for each month. The calculation of payment would be 4,167 x $0.20 resulting in a payment for March 2020 of $833.40. The payment for April 2020 would be $791.73, May would be $916.74, September 2020 would be $625.05, and December 2020 would be $958.41 based on the change of hay calculation. Total extra payment for the five payout months of 2020 would be $4,125.33 if the farm produced 5 million pounds of milk for the year. The changes per month vary a little, but the average increase using the change in hay price is 20.5 cents per month in which payments were triggered. So far through October, there have been 15 months during which payments were triggered for those who chose the $9.50 level. Thus, on 5 million pounds of milk per year or approximately 4,167 hundred weights per month, the approximate extra payments a farm would receive would be $12,813.53 over the period from January 2020 of which 15 months were below the $9.50 level triggering a DMC payment.
I hope this clarifies some of the confusion over the amount of money that would be received under the new income over feed calculation.
Robin Schmahl is a commodity broker with AgDairy, the dairy division of John Stewart & Associates Inc. (JSA). JSA is a full-service commodity brokerage firm based out of St. Joseph, MO. Robin’s office is located in Elkhart Lake, Wisconsin. Robin may be reached at 877-256-3253 or through the website www.agdairy.com.
The thoughts expressed and the basic data from which they are drawn are believed to be reliable but cannot be guaranteed. Any opinions expressed herein are subject to change without notice. Hypothetical or simulated performance results have certain inherent limitations. Simulated results do not represent actual trading. Simulated trading programs are subject to the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. There is risk of loss in trading commodity futures and options on futures. It may not be suitable for everyone. This material has been prepared by an employee or agent of JSA and is in the nature of a solicitation. By accepting this communication, you acknowledge and agree that you are not, and will not rely solely on this communication for making trading decisions.