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Supplemental DMC, hay payment levels updated

Progressive Dairy Editor Dave Natzke Published on 14 December 2021

Editor's note: This article has been updated from the original, noting that the DMC hay adjustment payments are subject to a sequestration deduction rate of 5.9% on 2020 payments and 5.7% on 2021 payments.

The USDA’s implementation of higher hay prices used in feed cost calculations will have an impact on the largest number of dairy producers participating in the Dairy Margin Coverage (DMC) program.

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Applied both retroactively to January 2020 and through the end of the current program in 2023, the change from using a 50-50 blend price of all alfalfa hay and Premium dairy-quality alfalfa hay will add about 20 cents per hundredweight (cwt) to the monthly feed cost calculated each month.

Read: USDA releases supplemental DMC, hay cost adjustment and 2022 enrollment details and DMC hay adjustment payments could be available Dec. 13.

That, in turn, will decrease the monthly income over feed cost margin by a similar amount and increase indemnity payments to eligible producers by an equal value in effected months.

2020-21 hay payments calculated

A USDA notice to state and regional Farm Service Agency (FSA) offices provides DMC hay cost calculation adjustments for each month retroactive to January 2020. The additional payment rate per cwt column shows the additional payment amount for that month the dairy operation will receive. Read: Announcing Dairy Margin Coverage (DMC) Program Feed Cost Adjustment Using Premium Alfalfa for 2020 and 2021 Retroactive Payment Triggers.

Based on detailed calculations in that document, hay cost calculations will add the following amounts (cents per cwt) to indemnity payments in 2020: March, 20 cents; April, 19 cents; May, 21 cents; September, 14 cents; and December, 24 cents. When spread across the full year for Tier I producers, the payment would average about 8 cents per cwt on 2020 milk production history.

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The hay cost changes add to indemnity payments through the first 10 months of 2021: January, 24 cents; February, 25 cents; March, 20 cents; April, 17 cents; May, 22 cents; June, 21 cents; July, 21 cents; August, 22 cents; September, 24 cents; and October, 23 cents. Across the first 10 months of 2021, the payment would average about 21.9 cents per cwt.

The hay payments are subject to a sequestration deduction rate of 5.9% on 2020 payments and 5.7% on 2021 payments.

The hay cost adjustment will be incorporated into normal monthly margin and indemnity payment calculations beginning in November, to be announced on Dec. 30.

Supplemental DMC

A second and separate change to DMC is the creation of a one-time supplemental DMC provision, allowing small and midsized producers to update their annual milk production history to levels produced in 2019 instead of baselines created in 2011, 2012 or 2013. The new milk production history is capped at 5 million pounds per year.

A notice to state and regional FSA offices provides details on participation in the supplemental DMC program. Read: Supplemental Dairy Margin Coverage (SDMC) Special Enrollment and 2022 Dairy Margin Coverage Election Period.

Under this provision, affected producers will be eligible for indemnity payments on 75% of the difference between the “old” production history and 2019 milk production, retroactively for 2021 and running through the life of the current DMC program, including 2022 and 2023 DMC coverage years.

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A dairy operation's supplemental production history is determined by subtracting the current DMC production history from the dairy operations milk marketings for the 2019 calendar year, with the result multiplied by 75%.

Once the supplemental production history is established, it will be a separate record from the established production history. When established and approved, any future DMC contract will cover both established and supplemental production history.

Supplemental DMC will require a revision to a producer’s 2021 DMC contract and must occur before enrollment in DMC for the 2022 program year. To do that, eligible producers must provide FSA officials with their 2019 milk marketing statement. A verbal certification does not meet requirements.

DMC premiums are required on enrolled supplemental production at the standard premium rate, including those dairy operations with lock-in contracts who enrolled in DMC through 2023 and previously received a premium discount under a special sign-up period. No discounted premiums are being allowed for supplemental pounds of coverage for lock-in contracts.

Dairy operations that changed ownership in 2021, including operations in which the producer is deceased, should contact their local FSA office to arrange to establish the proper paperwork.

Since production history adjustments will vary from farm to farm, determining individual payment rates isn’t possible. According to the USDA spokesperson, the FSA is projecting $137 million for 2021 supplemental DMC payments, with the total subject to change as dairy operations establish supplemental production history during the enrollment period.

Once supplemental production history is established and the 2021 DMC contract is revised and approved, payments will be processed the next day, according to the USDA spokesperson.

The change also affects how much eligible producers will receive for the hay cost adjustment, which is retroactive to January 2020. Producers who adjust their milk production history will receive the 2020 hay payment based on their old production history, but the 2021 hay payment on their updated production history.

As with the regular program, 2021 DMC supplemental payments are subject to a 5.7% sequestration deduction.

Enrollment information

The USDA FSA opened the enrollment period for both the general 2022 DMC program and the supplemental DMC program on Dec. 13. They run concurrently until Feb. 18, 2022. Due to concerns over COVID-19 variants, producers are urged to call their FSA offices to set up appointments.

For DMC enrollment, producers must certify with FSA that the operation is commercially marketing milk, sign all required forms and pay the $100 administrative fee. The fee is waived for farmers who are considered limited resource, beginning, socially disadvantaged or a military veteran.

Any payments DMC participants received for either the hay adjustment or supplemental production history cannot be applied to 2022 DMC premiums, according to the USDA spokesperson. However, for 2022 DMC, dairy operations with 100% share have the option to have 2022 premiums fees deducted from indemnity payments.

The current payment sequestration deduction rate of 5.7% continues into 2022.

Other resources

To determine the appropriate level of DMC coverage for a specific dairy operation in 2022, producers can use the online dairy decision tool.

Several other resources are also available.

  • A USDA fact sheet on the original DMC program covering premiums and other details is available here.

  • The National Milk Producers Federation (NMPF) has created a four-minute video discussing DMC, the recalculated feed cost formula for alfalfa hay, as well as the supplemental DMC provision for small and midsized dairy farms.

  • NMPF hosted a webinar, Dec. 13, featuring Peter Vitaliano, vice president of economic policy and market research, and Paul Bleiberg, senior vice president of government relations, discussing DMC. To view the recorded webinar, click here.

  • Pennsylvania’s Center for Dairy Excellence (CDE) will host a conference call, Dec. 21, 12:30-1:30 p.m. (Eastern time) to address DMC changes and updates on the USDA’s Pandemic Market Volatility Assistance Program (PMVAP). The call will feature Erin Taylor, director of order formulation and enforcement with the USDA’s Dairy Program; Cynthia Walters, USDA dairy program director in Pennsylvania; and Zach Myers, risk education manager, CDE risk management educator. To join the free call, dial (978) 990-5000, then enter access code 553371# when prompted. To submit questions in advance, text or call (717) 585-0766 or email Myers.  end mark
Dave Natzke
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