The Dairy Margin Coverage (DMC) program set three new records in August: (1) the highest total monthly average feed costs; (2) the smallest average milk income over feed cost margin; and (3) the largest indemnity payments for any month in the history of the dairy safety net program.
Natzke dave
Dave Natzke
Editor / Progressive Dairy

The USDA released its latest Ag Prices report on Sept. 30, including factors used to calculate monthly DMC margins and payments. Milk prices moved to a five-month low, while hay and corn prices continued to rise. The USDA’s Farm Service Agency (FSA) put the August DMC margin at $5.25 per hundredweight (cwt), 43 cents less than July 2021 and the smallest margin in the history of either DMC or its predecessor, the Margin Protection Program for Dairy (MPP-Dairy). It marked the seventh straight month in which the DMC milk income margin was below $7 per cwt.

Indemnity payments for those producers insured at the top margin will hit $4.25 per hundredweight (Table 1).

093021.natzke dairy margin tb 1

The August payments are on one-twelfth of a dairy operation’s covered annual production history, and DMC payments are subject to a 5.7% sequestration deduction in 2021.

Average milk price dips lower

The August 2021 announced U.S. average milk price fell 20 cents from July to $17.70 per cwt. August milk prices were lower than the month before in 20 of 24 major dairy states (Table 2), with largest declines in Florida, Iowa and Ohio. Idaho and New York posted small increases, with average prices in Arizona and Illinois unchanged. New Mexico had the lowest average milk price in August at $15.50 per cwt. Florida producers were again the price leaders at $21.50 per cwt.

Advertisement

Compared to a year earlier, the U.S. average milk price was down 90 cents per per cwt, with prices down $2 or more in Iowa, Minnesota, South Dakota, Utah and Wisconsin.

093021.natzke dairy margin tb 2

Feed costs hit new high

Driven by higher corn and hay prices, overall feed costs increased in August despite another small decline in the average cost of soybean meal.

  • The average price for a blend of Premium and all alfalfa hay used in DMC calculations was $222 per ton, up $5.50 per ton from July and the highest dating back to May-June 2014 under MPP-Dairy. The higher hay price came even though a change in the DMC alfalfa hay price factor, initially announced by the USDA on Aug. 19, has not yet been implemented.

  • The average price for corn increased another 20 cents to $6.32 per bushel, a new record high under DMC or MPP-Dairy.

  • The U.S. average cost of soybean meal fell to $358.21 in August, the lowest since September 2020.

Those feedstuff prices yielded an average DMC total feed cost of $12.43 per cwt of milk sold (Table 3), up 21 cents from July and the highest in the seven-year history of DMC or MPP-Dairy.

093021.natzke dairy margin tb 3

The large indemnity payments for August will likely push total year-to-date DMC payments near $950 million. As of Sept. 27, the USDA estimated indemnity payments through the first seven months of the year (covering January-July 2021) had already topped $817 million.  end mark