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MPP-Dairy payments extend to fourth month

Progressive Dairyman Editor Dave Natzke Published on 03 July 2018

May 2018’s Margin Protection Program for Dairy (MPP-Dairy) margin calculations continued a four-month string below $7 per hundredweight (cwt), meaning dairy producers who purchased coverage at the highest margin levels will receive indemnity payments for a fourth consecutive month.

Milk prices up slightly

The May U.S. average milk price improved 40 cents per cwt from April to $16.20 per cwt (Table 1). The May 2018 average was 50 cents less than May 2017. Through the first five months of 2018, the average milk price stands at $15.80 per cwt compared to $17.58 per cwt in the same period of 2017.

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070218 natzke mpp tbl1

Among the 23 major dairy states, May prices were up slightly in all states except Ohio, where the price was unchanged. Florida’s average of $19.60 per cwt remained the nation’s high. The low was $14.80 per cwt in New Mexico and Michigan.

Compared to a year earlier, May 2018 milk prices were lower in all 23 states, led by declines in Ohio (-$1.30) and Indiana (-$1.20).

Feed prices at four-year high

May 2018 U.S. average feed prices increased to $9.42 per cwt of milk sold, the highest level since 2014 (Table 2). Soybean meal and corn prices were the highest since June 2016, and the alfalfa hay price was the highest since May 2015.

070218 natzke mpp tbl2

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MPP-Dairy margin below $7 again

The national average margin was $6.78 per cwt in May. The February-May 2018 average margin is the lowest four-month average since mid 2016.

It means dairy farmers who enrolled in MPP-Dairy and elected $7, $7.50 or $8 per cwt margin coverage are now guaranteed indemnity payments for a fourth consecutive month.

Dairy farmers insured at the $8 per cwt margin level will receive a base payment of about $1.22 per cwt on May milk (Table 3), less the 6.6 percent sequestration deduction and any premium costs. Producers insured at the $7.50 margin level will see a base of about 72 cents per cwt; those at the $7 margin will receive about 22 cents.

070218 natzke mpp tbl3

For example, a dairy herd with annual production history of 6.25 million pounds of milk and electing to cover 80 percent of that milk (5 million pounds) would be eligible for payment on 4,167 hundredweights (5 million pounds divided by 100 divided by 12) per month.

The 4,167 hundredweights multiplied by $1.21907 per cwt would yield a payment of $5,080 for May. Subtracting the sequestration deduction of about $335, the payment drops to about $4,745. That does not include any deductions for premiums.

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Payments are issued directly to producers via electronic deposit; there are no paper checks. Although USDA began making MPP-Dairy payments in early June, the transfer of funds to some producers was delayed. For example, Cynthia Walters, program director with the Pennsylvania USDA Farm Service Agency, said about 300 of 2,000 Pennsylvania dairy producers who had enrolled in MPP-Dairy for 2018 had not received payments for February, March and April milk as of June 27, due to computer software problems and other issues.

Dairy margins end June weaker

Nearby dairy margins continued to deteriorate in the second half of June, while the deferred margins held a bit steadier, according to Commodity & Ingredient Hedging LLC.

Trade relations between the U.S. and China, as well as the North American Free Trade Agreement (NAFTA) partnership, continue to suffer as the early July deadlines for retaliatory tariffs are set to kick in.

Mexico has elected a new leader, President-elect Andres Manuel Lopez Obrador, who will take office in December. U.S. President Donald Trump indicated his intentions to reset the NAFTA talks after the U.S. midterm elections this fall, in line with the new Mexican administration.

Global Dairy Trade index drops

Overall Global Dairy Trade (GDT) dairy product prices moved 5 percent lower during the auction held July 3.

Prices were lower for nearly all dairy products offered. Among major products, the cheddar cheese price was down 4.3 percent to $3,713 per metric ton (MT); butter was down 4 percent to $5,390 per MT; whole milk powder was down 7.3 percent to $2,905 per MT; and skim milk powder was down 4.6 percent to $1,913 per MT

The next GDT auction is July 17.

California 4a, 4b prices announced

California’s June Class 4a price is $14.22 per cwt, up 16 cents from May, but $1.69 less than June 2017. The year-to-date 2018 average stands at $13.37 per cwt compared to $14.85 per cwt a year ago.

The June 4b price is $14.43 per cwt, down 47 cents from May and $1.17 lower than June 2017. The January-June 2018 average stands at $14.05 per cwt compared to $15.12 per cwt a year ago.

May cull cow prices soften

U.S. cull cow prices fell for a second consecutive month in May, according to the USDA National Ag Statistics Service Ag Prices report.

May 2018 cull cow prices (beef and dairy combined) averaged $66.20 per cwt, down $1.30 from April and $7.10 per cwt less than May 2017. Year to date, the cull cow price average is $66.30 per cwt, down $2.48 per cwt from January-May 2017.  end mark

Dave Natzke
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