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July DMC margin improves, leaving smaller indemnity payment

Progressive Dairy Editor Dave Natzke Published on 30 August 2019

The good news is that dairy farmers received more money from the market on their July milk production. And those signing up for the highest level of Tier 1 coverage under the 2019 Dairy Margin Coverage (DMC) program are ensured indemnity payments for a seventh consecutive month. However, with July milk prices climbing faster than feed costs, the July DMC indemnity payment will be the smallest of the year, and it could be the last.

The USDA released its latest Ag Prices report on Aug. 30, including factors used to calculate July DMC payments. The July DMC margin was estimated at $9.27 per hundredweight (cwt), resulting in a gross indemnity payment of 23 cents per cwt on milk covered at the $9.50 per cwt level (Table 1).

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July milk prices hit 30-month high

The July 2019 U.S. average milk price rose 60 cents per cwt from June to $18.70 per cwt. The average was $3.20 higher than July 2018 (Table 2) and the highest average since January 2017.

Through July, the average 2019 U.S. all-milk price stands at $17.63 per cwt, $1.79 more than the same period a year ago and the second-highest average for that six-month period since 2014.

Florida’s average of $22.20 per cwt remained the nation’s high, followed by Oregon at $21.50 per cwt, and at the low end, Michigan and New Mexico prices averaged $17.30 and $17.20 per cwt, respectively.

Compared to a year earlier, July 2019 milk prices were up at least $3 per cwt or more in 14 states, with Minnesota up $3.80 per cwt to $19.20 per cwt.

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Alfalfa hay, soybean meal cheaper

U.S. average feed costs moved slightly lower in July, with declining alfalfa hay and soybean meal prices more than offsetting higher average prices for corn.

Under the revised DMC program formula, the USDA calculates a 50-50 blend price for alfalfa hay, averaging all alfalfa hay prices in 27 states and prices for Premium and Supreme dairy-quality alfalfa hay prices in the five largest milk-producing states each month – California, Idaho, New York, Texas and Wisconsin. The U.S. average alfalfa hay price for July was $183 per ton, down $10 from June. The dairy-quality alfalfa hay price averaged $209 per ton, down $8. As a result, the July alfalfa hay average price used in the DMC calculations was $196 per ton, down $9 from June.

Soybean meal averaged $310.77 per ton in July, down $13.98 per ton. July corn prices averaged $4.16 per bushel, up 18 cents from June.

That yielded an average DMC total feed cost of $9.43 per cwt of milk sold, down 4 cents from June (Table 3).

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Based on milk and feed futures prices as of Aug. 29, the July DMC payment could be the last of the year. Little change in the margin is expected in August, and margins are forecast to peak above $10 per cwt through the end of the year before declining in early 2020.

DMC sign-up period open until Sept. 20

As of Aug. 25, 17,677 dairy operations had signed up for the Dairy Margin Coverage (DMC) program. That number represents about two-thirds of the 26,832 dairy operations with established milk production history and about 61% of the milk production history. DMC provides coverage retroactive to Jan. 1, 2019, with applicable payments distributed to eligible dairy farmers shortly after they enroll. As of Aug. 25, the USDA’s Farm Service Agency (FSA) had estimated payments of $229.6 million to producers for milk production insured from January through June 2019. (Read: Dairy Margin Coverage enrollment period enters final 3 weeks.)

Here is a reminder as you head to your FSA office to sign up for DMC before the Sept. 20 deadline: The USDA has made a web-based tool to help dairy producers evaluate coverage levels through the DMC program by combining operation data and other key variables to calculate coverage needs based on price projections.

The decision tool assists producers with calculating total premiums costs and administrative fees associated with participation in DMC. It also forecasts payments that will be made during the coverage year.  end mark

Dave Natzke
  • Dave Natzke

  • Editor
  • Progressive Dairy
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