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Economic Update: 2021 DMC payments near $1.2 billion

Progressive Dairy Editor Dave Natzke Published on 05 January 2022

Update Highlights

2021 DMC payments near $1.2 billion

With the 2022 Dairy Margin Coverage (DMC) program enrollment period underway, the USDA continues to make indemnity payments to those covered in 2021. As of Jan. 3, the USDA’s Farm Service Agency (FSA) estimated DMC indemnity payments at about $1.19 billion.

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The 2021 year-to-date total includes: DMC margin payments on January-November 2021 milk marketings, retroactive 2021 DMC payments due to the alfalfa feed cost formula change and retroactive Supplemental DMC (SDMC) program payments for dairy operations that had a revised and approved 2021 DMC contract prior to Jan. 3, 2022. SDMC allows small- and midsized dairy producers to update DMC production history using 2019 milk marketings.

Updating previous DMC program numbers, 18,908 of the 25,144 dairy operations with established DMC milk production history were enrolled in 2021, representing about 75% of all producers with established milk production history and 78% of their milk production. Year-to-date payments across all participating dairies averaged $63,304.

The USDA recorded a webinar, Jan. 4, focusing on how the new SDMC program works in conjunction with the established DMC program and explaining how producers can enroll. View the recorded webinar here. For those considering SDMC and DMC enrollment for 2022, the sign-up deadline is Feb. 18 at USDA FSA offices.

Indemnity payments on November milk marketings were the lowest of the year, thanks to a higher U.S. average all milk price. Read: November DMC margin strengthens to $9.14 per cwt.

Virginia, Maryland ag departments offer DMC premium assistance

Dairy producers in Virginia and Maryland are eligible for state cost-share assistance to help cover margin insurance coverage under the USDA’s DMC program in 2022.

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Virginia’s Dairy Producer Margin Coverage Premium Assistance Program reimburses the state’s Grade A dairies for the premium payments they make for DMC participation at the Tier I level. Approved during a special session of the 2021 General Assembly, program funding for the current fiscal year is set at $1 million. Program reimbursement funds are limited and available on a first-come, first-served basis.

Virginia dairy producers eligible for the state reimbursement must show they have paid their DMC premiums and must have a nutrient management plan. Only complete applications with a postmark dated between Oct. 12, 2021, and Feb. 1, 2022, will be considered. Electronic submissions of applications will not be accepted.

In Maryland, a cost-share program first implemented in 2019 will again cover DMC 2022 premiums for the state’s dairy farmers’ participating at the Tier I, $9.50 per hundredweight (cwt) margin coverage level. Arranged through the Maryland Department of Agriculture, those premium reimbursement payments are made directly from the FSA office, reducing the state administrative burden on eligible dairy producers.

Vitaliano: Milk supply to continue to tighten

Based on milk futures prices as of mid-December, the collective opinion of position holders in the markets is that the current tightening U.S. milk production situation will continue well into the coming year, despite the relatively strong price outlook. Read the latest Dairy Market Report from National Milk Producers Federation’s Peter Vitaliano. Domestic consumption growth of all milk and dairy products has been somewhat sluggish in recent months, but U.S. dairy exports during the first 10 months of 2021 have set a new volume record of 17.6% of U.S. milk solids production, well above this measure’s second-highest year, 2020, at 16.3%

GDT price index higher

The first Global Dairy Trade (GDT) auction of the new year saw most dairy prices move higher, with the overall index up slightly. In the auction held Jan. 4:

  • Skim milk powder was up 1% to $3,773 per metric ton (MT, or about 2,205 pounds).
  • Whole milk powder was unchanged at $3,866 per MT.
  • Butter was up 0.3% to $5,868 per MT.
  • Cheddar cheese was up 4.9% to $5,487 per MT.
  • Anhydrous milkfat was down 0.7% to $6,668 per MT.

The next GDT auction is Jan. 18.

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Cull cow prices retained strength in November

U.S. prices received for cull cows (beef and dairy, combined) averaged $69.20 per cwt during November, down about $1.40 from October but $9.90 more than November 2020. Despite the decline from October, the November 2021 average is still the highest for the month since 2015 and the January-November price average is the highest for that period since 2017.

Year to date, the 2021 average price is $4.75 more than a year earlier, even though there’s been a 5.3% increase in the cow culling rate. Drought and higher feed costs have been driving higher beef and dairy cow culling rates for most of the second half of the year.

January-November beef cow slaughter was estimated at 3.24 million head, up 283,600 head compared to January-November 2020. Through the first 11 months of 2021, dairy cull cow slaughter was estimated at 2.839 million, about 48,600 head more than the same period in 2020.

Read also: Dairy cull cow slaughter slows.

In a recent report from Dairy Market News summarizing a Pacific Northwest auction, the average price for the top 10 organic cows auctioned was $110.81 per cwt, compared to an average price of $76.65 per cwt for conventional top 10 cows auctioned.

September 2021 mailbox, all-milk price spread was steady

Two monthly average milk prices announced by the USDA both improved for September milk marketings. The spread between the average “all-milk” and “mailbox” prices widened slightly to about 87 cents per cwt during the month, a nickel more than August.

The all-milk price is the estimated gross milk price received by dairy producers and includes quality, quantity and other premiums but does not include marketing costs and other deductions.

The mailbox price is the estimated net price received by producers for milk, including all payments received for milk sold and deducting costs associated with marketing.

September 2021 milk marketings through Federal Milk Marketing Orders (FMMOs) extended summer-long trends resembling 2019 and pre-pandemic 2020. With a few exceptions, Class III milk pooling was more consistent, and producer price differentials (PPDs) were smaller but mostly positive. PPDs in the seven FMMOs utilizing multiple component pricing averaged a positive 62 cents per cwt. Read: Class III milk flows back in the pool.

Through the first nine months of 2021, the USDA’s mailbox prices averaged about $1.06 per cwt less than average all-milk prices for the same months. During that period, all-milk prices averaged $18 per cwt, while mailbox prices averaged $16.94 per cwt.

The difference in the two announced prices can affect dairy risk management, since indemnity payments under the DMC, Dairy Revenue Protection (Dairy-RP) and Livestock Gross Margin for Dairy (LGM-Dairy) programs are all based on the all-milk price, before any marketing cost deductions.

The price announcements reflect similar – but not exactly the same – geographic areas. The USDA National Ag Statistics Service (NASS) reports monthly average all-milk prices for the 24 major dairy states. The mailbox prices are reported by the USDA’s Agricultural Marketing Service (AMS) and covers selected FMMO marketing areas. The AMS announcement of mailbox prices generally lag all-milk prices by a couple of months.

Ag producer sentiment rises despite higher input costs

Ag producer sentiment improved despite ongoing concerns over higher input costs and supply chain challenges, based on results of the monthly Purdue University/CME Group Ag Economy Barometer survey. The brighter outlooks for both current and future financial positions was driven primarily by stronger cash flow.

"Excellent crop yields this fall combined with strong crop prices provided many producers with their most positive cash flow in recent years. That combination helps explain the year-end rise in the financial index as well as the barometer overall," said James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture.

Among survey result highlights:

  • The index measuring capital investment plans rose, with fewer producers saying they’ll reduce machinery purchases during the upcoming year.

  • The biggest concern for the year ahead relates to higher input costs. Additionally, near four out of 10 respondents said they were experiencing difficulties in purchasing fertilizer, herbicides, farm machinery parts and insecticides.

  • Although down from the previous month, indexes measuring expectations for rising short- and long-term land values remained near all-time highs. Producers indicated non-farm investor demand, low interest rates and strong farm cash flows were their primary reasons for expecting values to rise.

The Ag Economy Barometer provides a monthly snapshot of farmer sentiment regarding the state of the agricultural economy. The survey collects responses from 400 producers whose annual market value of production is equal to or exceeds $500,000. Minimum targets by enterprise are as follows: 53% corn/soybeans, 14% wheat, 3% cotton, 19% beef cattle, 5% dairy and 6% hogs. Latest survey results, released Oct. 5, reflect ag producer outlooks as of Dec. 8-14.  end mark

Dave Natzke
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