Dave Natzke

Editor / Progressive Dairy

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Market drivers

The USDA’s monthly Milk Production report was highlighted by reductions in cow numbers for both August and September. Combined with weakness in milk production per cow, September’s year-over-year growth in milk production was the smallest since May 2019-20, when COVID-19 pandemic market disruptions led to widespread implementation of base-excess programs.

While cow numbers remain above a year ago, the two-month reductions are substantial. Not only are September 2021 U.S. cow numbers down 25,000 from August, but August numbers were reduced by 33,000 from the preliminary estimate last month. Combined, U.S. cow numbers are now down 85,000 head since peaking in May 2021.

Read: Dairy cow numbers post dramatic declines.

For a second straight month, the USDA’s World Ag Supply and Demand Estimates (WASDE) report reduced milk production forecasts and raised projected milk prices for both 2021 and 2022. Combined with lower soybean prices, the implications are that dairy income margins should climb off the extremely low levels this summer.

Read: Economic Update: USDA outlook cuts milk production estimates, brightens price forecast.

Factors affecting demand remain fairly strong, with product and market diversity helping maintain dairy export strength despite port congestion; retail dairy sales in flux due to the COVID-19 variant and food price inflation; fluid sales continuing a long-term trend lower; and stronger prices in the latest Global Dairy Trade auction.

Dairy Margin Coverage

Latest monthly Dairy Margin Coverage (DMC) program numbers are scheduled to be released on Oct. 29. Check the Progressive Dairy website for September margin and indemnity payment calculations. The October 2021 DMC program margin and potential indemnity payments will be released on Nov. 30.

No additional information has emerged regarding upcoming changes to the DMC program, including an adjustment in hay prices used in monthly feed cost calculations, the supplemental DMC program for small and medium farms or the enrollment period for 2022.

The USDA did update year-to-date DMC indemnity payment totals as of Oct. 25. Through the first eight months of the year (covering January-August 2021), DMC indemnity payments had already topped more than $981.2 million. Year-to-date payments across all participating dairies averaged $51,566.

Dairy-RP and LGM-Dairy

Dairy Revenue Protection (Dairy-RP) and Livestock Gross Margin for Dairy (LGM-Dairy) are two federally subsidized risk management programs administered by USDA’s Risk Management Agency. Both Dairy-RP and LGM-Dairy and Dairy-RP are sold and delivered solely through private crop insurance agents.

Dairy-RP and LGM-Dairy coverage availability will be impacted by holidays in November and December (see the calendar).

Click here or on the calendar above to view it at full size in a new window.

Dairy-RP is not available on days of major USDA dairy reports that could impact markets, including Milk Production, Cold Storage and Dairy Product reports. Dairy-RP is also not available on days when applicable futures contracts move limit-up or limit-down.

With Dairy-RP providing protection against an unexpected decline in milk revenue (yield and/or price), recent comments from insurance agents indicate that weaker milk output per cow is making some producers qualify for substantial indemnity payments for the third quarter of 2021.

Sales periods for the LGM-Dairy program are open on a weekly basis but unlike Dairy-RP, LGM-Dairy is available even if a sales period falls on the day of a USDA report. With LGM-Dairy factors calculated using the average futures prices for Class III milk, corn and soybean meal, some program participants are seeing payments due to escalating feed costs.

Other resources

• Zach Myers, risk education manager with Pennsylvania Center for Dairy Excellence (CDE), hosts the next “Protecting Your Profits” webinar on Oct. 27, beginning at noon (Eastern time). That program will feature Phil Plourd, president of Blimling and Associates, who will break down the current dairy market situation and share what producers can expect heading into the new year. Advance registration is not necessary. To participate in the webinar, click here or phone: (646) 558-8656. When prompted, enter meeting ID 848 3416 1708 and passcode 474057.
  
  
• Iowa State University is offering a Milk Market Update program, Nov. 9, 6:30-8 p.m. (Central time) at the Sioux County Extension and Outreach office, Orange City, Iowa. Presenters include Matt Tranel, with ever.ag, and Ron Mortenson, Dairy Gross Margin LLC, a regular Progressive Dairy risk management editorial contributor. Register here or by calling (712) 737-4230. The registration deadline is Nov. 8.
  
  
• Federal Milk Marketing Order (FMMO) administrators will announce October uniform prices, pooling data and producer price differentials early in the week beginning Nov. 11-14. Watch the Progressive Dairy website for updates.
  
  
• In New York, Cornell Cooperative Extension Albany County and the Capital Area Agriculture & Horticulture Program will host a dairy risk management program via Zoom, Dec. 6, 7-8:15 p.m. (Eastern time). Led by farm business management educator Dayton Maxwell, the program will feature David Holck, with USDA’s Farm Service Agency, discussing the DMC and the Pandemic Market Volatility Assistance Program (PMVAP), and Tristan Peterson, with Crop Growers Insurance, discussing Dairy-RP. The cost of the meeting is $10 per farm, with no limit on the number of people from a farm attending. Registration and online payment are available here.