January 2023 DMC at a glance
Dairy Margin Coverage (DMC) program margin factors compared to previous month:
- Alfalfa hay: $321 per ton, up $1 from December 2022
- Corn: $6.64 per bushel, up 6 cents
- Soybean meal: $482.40 per ton, up $19.55
- Total feed costs: $15.16 per hundredweight (cwt), up 22 cents
- Milk price: $23.10 per cwt, down $1.60
- Margin above feed cost: $7.94 per cwt, down $1.82
- DMC indemnity payments: $1.56 at $9.50 coverage level
Source: USDA Farm Service Agency, National Ag Statistics Service and Ag Marketing Service, Feb. 28, 2023
The USDA released its latest Ag Prices report on Feb. 28, including factors used to calculate January 2023 DMC margins and indemnity payments.
Margin and payments
Combining higher feed costs and a lower average all-milk price, the January margin was $7.94 per cwt, down $1.82 cents from December and triggering Tier I indemnity payments at $9.50, $9, $8.50 and $8 DMC coverage levels.
Milk prices lower
The January 2023 announced U.S. average milk price fell $1.60 from December to $23.10 per cwt, the lowest since December 2021.
January milk prices were lower than the month before in all 24 major dairy states. Among individual states, average prices were down $2.30-$2.80 in Idaho, Iowa, Minnesota, Oregon and Washington. High price for the month was in Florida at $27.10 per cwt; the low was in New Mexico at $20.80 per cwt.
Compared to a year earlier, January 2023’s U.S. average milk price was down $1.10 per cwt. Only three states saw average prices up from a year earlier: Florida (+$1), Georgia (+$1.20) and Ohio (+30 cents).
Feed costs higher
In addition to the lower average milk price, the DMC margin weakened due to higher overall average feed costs.
- At $6.64 per bushel, the average price for corn was 6 cents higher than a month earlier and the highest since last September.
- The January average price for dairy-quality alfalfa hay was $328 per ton, up $1 from December.
- The average cost of soybean meal (SBM) rose to $482.40 per ton, up $19.55 from December and the highest since last August.
The feed cost for each month is calculated by summing three numbers: (1) the corn price per bushel times 1.0728; plus (2) the soybean meal price per ton times 0.00735, plus (3) the alfalfa hay price per ton times 0.0137.
January feedstuff prices yielded an average DMC total feed cost of $15.16 per cwt of milk sold, up 22 cents from December and a three-month high.
Indemnity payments
At $7.94 per cwt, the January DMC margin triggers Tier I indemnity payments at the top four coverage levels and a Tier II indemnity payment at the $8 coverage level. Tier I payments based on coverage level are: $9.50 – $1.56 per cwt, $9 – $1.06, $8.50 – 56 cents and $8 – 6 cents. All 2023 DMC indemnity payments are subject to a 5.7% sequestration deduction.
Before the sequestration deduction, each 1 million pounds insured at $9.50 will receive an indemnity payment of about $1,237, almost covering the annual premium cost, according to Erick Metzger, general manager, National All-Jersey Inc.
Looking ahead
The January 2023 indemnity payments are the first in what looks to be a long-term trend. Based on the DMC decision tool as of Feb. 27, DMC margins are expected to fall below $6.50 per cwt in February-April, stay below $7 in May-June and remain below the top $9.50 coverage level until October.
As of Feb. 6, 16,683 dairy operations had enrolled in the 2023 DMC program, representing about 73% of operations with established production history. Milk volume covered under the program totaled 155.3 billion pounds, almost 79% of production history established in 2022.
The enrollment figures do not include enrollment in the Supplemental DMC program.
Other operating costs mostly higher
Outside of feed – and not factored into DMC margins – other costs were mixed but mostly higher. The January index of prices paid for commodities and services, interest, taxes and farm wages was up 0.9% from December 2022 and 7% more than January 2022. Machinery costs dipped 0.2% from December but were up 11% from January a year ago. The January fuel cost index was up 1% from December and 8% more than January 2022. Fertilizer prices dipped 4.8% from December but remained 2% higher than January 2022.
Market cow prices rise
U.S. average prices received for cull cows (beef and dairy, combined) in January averaged $81.70 per cwt, up $4.80 from December and the highest monthly average since last October.
Read also: Dairy risk management calendar: March 2023
