August 2018’s Margin Protection Program for Dairy (MPP-Dairy) calculations indicate margins improved somewhat, thanks primarily to lower feed costs.
Milk price inches upward
The August U.S. average milk price rose 50 cents per hundredweight (cwt) from July to $15.90 per cwt (Table 1), but was still $2.10 less than August 2017. Through the first eight months of 2018, the average milk price stands at $15.83 per cwt compared to $17.55 per cwt in the same period of 2017.
Compared to a month earlier, August milk prices among the 23 major dairy states were mostly higher, led by Idaho, Iowa, Minnesota, each up about $1 per cwt. Prices declined in Florida and Virginia.
Compared to a year earlier, August 2018 milk prices were down at least $2 or more in 18 states, led by Florida, Indiana, Ohio, Pennsylvania, Texas and Virginia, where declines approached $3 per cwt.
Florida’s average of $19.50 per cwt remained the nation’s high. The lows were in Michigan and New Mexico at $14.60 and $14.10 per cwt, respectively.
Feed prices down
August 2018 U.S. average feed prices declined about 21 cents from July to $8.47 per cwt of milk sold (Table 2). The soybean meal price fell about $8.58 per ton from July to $332.50 per ton; the U.S. average corn price dropped another 11 cents per bushel to $3.36 per bushel; and the alfalfa hay price again declined $2 per ton to $177 per ton. The soybean meal and corn prices were the lowest since January; the alfalfa hay price was the lowest since March.
MPP-Dairy margin moves higher
The lower feed costs helped boost the national average milk income over feed cost margin to about $7.43 per cwt in August, the highest since January. As a result, dairy farmers who enrolled in MPP-Dairy and elected $7.50 and $8 per cwt margin coverage levels will see small payments for milk marketed in August (Table 3).
Dairy farmers insured at the $8 per cwt margin level will receive a base payment of about 57.3 cents per cwt on August milk, less the 6.6 percent sequestration deduction and any premium costs. Producers insured at the $7.50 margin level will see a base payment of about 7.3 cents per cwt; those insured at the $7 per level will not receive a payment for the month.
For example, insured at the $8 level, 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 about 57.3 cents per cwt would yield a base payment of $2,388 for August. Subtracting the sequestration deduction of about $158, the payment drops to about $2,230. Payments are issued directly to producers via electronic deposit; there are no paper checks.
A reminder: All MPP-Dairy premiums for 2018 were due Sept. 28.
Based on current futures prices, the August MPP-Dairy payments are likely the last for 2018. As of Sept. 26, the Program on Dairy Markets and Policy projected September’s margin to rise to almost $9 per cwt. Margins are forecast to climb back to $9.50 per cwt by November, staying there through January 2019.
A new program, the Dairy Revenue Protection program, kicks off Oct. 9. Producers will be eligible to purchase quarterly revenue insurance on milk produced beginning Jan. 1, 2019. Read: Dairy Revenue Protection: Some practical matters. 
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Dave Natzke
- Editor
- Progressive Dairyman
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