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May margin adds to retroactive DMC payments

Progressive Dairy Editor Dave Natzke Published on 28 June 2019

Dairy producers signing up for the highest level of Tier 1 coverage under the 2019 Dairy Margin Coverage (DMC) program are ensured indemnity payments for a fifth consecutive month. The USDA released its latest Ag Prices report on June 27, including factors used to calculate May DMC estimated payments.

The May DMC margin was estimated at $9 per hundredweight (cwt), resulting in a gross indemnity payment of 50 cents per cwt on milk covered at the $9.50 per cwt level (Table 1).

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 062719.natzke dmc margin tb1

Producers insured at the $9.50 per cwt margin level earned indemnity payments averaging $1.23 per cwt on milk production history for January-April. That’s been incentive enough for dairy farmers to enroll in DMC in the first weeks of the sign-up period. (Read: USDA reports strong early interest in Dairy Margin Coverage program)

May milk prices higher

The May 2019 U.S. average milk price rose 30 cents per cwt from April to $18 per cwt. The average was $1.80 higher than May 2018 (Table 2) and the highest average since November 2017.

062719.natzke dmc margin tb2

Through May, the average 2019 U.S. all-milk price stands at $17.32 per cwt, $1.50 more than the same period a year ago and the second-highest average for that five-month period since 2014.

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Florida’s average of $21.40 per cwt remained the nation’s high; three states (Kansas, Michigan and New Mexico) saw averages under $17 per cwt. For the first time, Georgia was included in the list of major dairy states, with the May 2019 average about $2.10 per cwt less than Florida.

Compared to a year earlier, May 2019 milk prices were up at least $2 per cwt or more in five states (California, Georgia, Indiana, Michigan and New York).

Alfalfa hay, corn more expensive

U.S. average feed costs also moved higher in May, with higher alfalfa hay and corn prices more than offsetting a small decline in the price of soybean meal.

Under the revised DMC program formula announced in early June, 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 May average was $213 per ton, up $4 from April.

May corn prices averaged $3.63 per bushel, up 11 cents from April. Soybean meal averaged $297.52 per ton, down $6.74 per ton. That yielded an average total feed cost of $9 per cwt of milk sold, up 12 cents from April (Table 3).

062719.natzke dmc margin tb3

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DMC calculator available

A reminder as you head to your FSA office to sign up for DMC before Sept. 20: The USDA has made a new web-based tool to help dairy producers evaluate coverage levels through 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. Market conditions change, but latest projections (as of June 27) indicate DMC margins remain under $9.50 per cwt through August, before closing the year at or above $9.75 per cwt.  end mark

Dave Natzke
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