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No September DMC indemnity payments as margin jumps

Progressive Dairy Editor Dave Natzke Published on 01 November 2019

Improving monthly average milk prices combined with lower feed costs continue to improve the margin picture for U.S. dairy farmers, and there will be no Dairy Margin Coverage (DMC) program indemnity payments at any level of coverage for a second straight month.

The USDA released its latest Ag Prices report on Oct. 31, including factors used to calculate September DMC payments. The September DMC margin was estimated at $10.41 per hundredweight (cwt), above the highest insurable margin of $9.50 per cwt (Table 1).

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dmc payments

September milk price tops $19

The September 2019 U.S. average milk price rose 40 cents per cwt from August, to $19.30 per cwt. The average was $2.60 higher than September 2018 (Table 2) and is the highest monthly price since December 2014.

milk prices

Through September, the average 2019 U.S. all-milk price stands at $17.96 per cwt, $2.01 more than the same period a year ago.

Dairy farmers in five states saw a slight decline in milk prices compared to a month earlier. Even though it declined from August, Florida’s average of $22.50 per cwt remained the nation’s high in September, followed closely by Oregon, at $22.10 per cwt. Average prices in Georgia, Iowa, Minnesota, South Dakota and Virginia also topped $20 per cwt. Michigan and New Mexico prices remained at the low end, averaging $17.90 and $17.40 per cwt, respectively.

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Compared to a year earlier, September 2019 milk prices were up between $2.04 and $2.90 from September 2018, except in Washington.

Feed costs decline

U.S. average feed costs continued to move lower in September.

Under the revised DMC program formula, the USDA calculates a 50-50 blend price for alfalfa hay, averaging the U.S. average alfalfa hay price and the average price for dairy quality alfalfa hay in the five largest milk-producing states each month – California, Idaho, New York, Texas and Wisconsin. The U.S. average alfalfa hay price for September was $181 per ton, up $2 from August. However, the dairy quality alfalfa hay price averaged $204 per ton, down $4. As a result, the September alfalfa hay average price used in the DMC calculations was $192.50 per ton, down $1 from August and the low for the year.

Soybean meal averaged $295.57 per ton in September, down 85 cents per ton from August and more than $29 less than June 2019. September corn prices averaged $3.80 per bushel, down 13 cents from July and the lowest since May.

That yielded an average DMC total feed cost of $8.89 per cwt of milk sold, down 16 cents from August and the lowest since April (Table 3).

DMC margin calculations

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Markets change, but based on milk and feed futures prices as of Oct. 31, DMC margins are expected to peak above $11 per cwt in October and November, and remain above $10 per cwt into 2020.

2020 DMC sign-up period closes Dec. 13

The deadline to enroll in DMC for 2020 is Dec. 13, 2019. Producers who locked in coverage in the 2019 sign-up must certify the operation is producing and commercially marketing milk and pay the annual administrative fee during the 2020 enrollment period. Premiums for 2020 coverage are not due until Sept. 1, 2020.

Also, dairy operations participating in DMC that had an intergenerational transfer between 2014 and 2019 have until Dec. 6, 2019, to take advantage of a one-time opportunity to increase their established production history during the 2019 and 2020 annual coverage election periods. Retroactive payments based on the increased production history will apply for 2019 and not prior years. The production history increase will account for additional milk produced by dairy cattle purchased within 120 days of a family member (a spouse, child or grandchild) joining the operation from 2014 to present, up to 5 million pounds.  end mark

Dave Natzke
  • Dave Natzke

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