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USDA announces January income over feed cost margin triggers first 2019 dairy safety net payment

Progressive Dairyman Editor Dave Natzke Published on 06 March 2019

Editor's note: This original version of this article was updated to include indemnity and premium calculations.

The USDA Farm Service Agency (FSA) announced the January 2019 income over feed cost margin was $7.99 per hundredweight (cwt), triggering the first payment for eligible dairy producers who purchase the appropriate level of coverage under the new but yet to be established Dairy Margin Coverage (DMC) program. The payment isn't expected until July.

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DMC, which replaces the Margin Protection Program for Dairy (MPP-Dairy), is a voluntary risk management program for dairy producers that was authorized by the 2018 Farm Bill. DMC offers protection to dairy producers when the difference between the all-milk price and the average feed cost (margin) falls below a certain dollar amount selected by the producer.

U.S. Secretary of Agriculture Sonny Perdue announced last week that sign-up for DMC will open by mid-June. Read: Perdue lays out possible DMC timeline. Once indemnity payments begin, they will be retroactive to Jan. 1, 2019.

At the time of sign-up, producers who elect a DMC coverage level at the $9.50 per cwt level would see a payment of $1.51 per cwt on their January milk marketings. Producers selecting $9 per cwt coverage would receive and indemnity payment of $1.01 per cwt, and producers selecting coverage at $8.50 per cwt would see a payment of 51 cents per cwt. All indemnity payments are subject to a 6.6 percent sequestration deduction.

For example, a dairy herd with annual production history of 5 million pounds of milk and electing to cover the maximum 95 percent of that milk (4.75 million pounds) would be eligible for payment on 3,958 hundredweights (4.75 million pounds divided by 100 divided by 12) per month. 

If protected at $9.50 per cwt, the 3,958 hundredweights multiplied by $1.51 per cwt would yield a payment of $5,977 for January. Subtracting the sequestration deduction of about $395, the payment drops to about $5,582. That does not include any deductions for premiums.

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The January indemnity payment would cover a large share of the entire year’s premium costs. The annual premium rate for coverage at the $9.50 level is 15 cents per cwt, or $7,125 for 4.75 million pounds (47,500 hundredweights) of milk.

Read: Dairy Margin Coverage program participation should pay off early for many producers.

“Congress created the Dairy Margin Coverage program to provide an important financial safety net for dairy producers, helping them weather shifting milk and feed prices,” FSA Administrator Richard Fordyce said. “This program builds on the previous Margin Protection Program for Dairy, carrying forward many of the program upgrades made last year based on feedback from producers. We’re working diligently to implement the DMC program and other FSA programs authorized by the 2018 Farm Bill.” 

Additional details about DMC and other FSA farm bill program changes can be found at the USDA Farmers website.  end mark

Dave Natzke
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