Here’s an update on risk management tools available through the USDA and/or USDA’s Risk Management Agency (RMA), as well as information impacting your milk check.
Dairy Margin Coverage (DMC) program
The February 2023 DMC margin will be announced on March 31, and large indemnity payments will be triggered. Based on DMC decision tool calculations as of March 23, the forecast DMC margin for February is $6.41 per hundredweight (cwt), which would be the smallest margin since August 2021.
Based on current futures prices, the projected DMC margin for March 2023 continues to deteriorate, falling to $6.16 per cwt, and stays below $7.50 per cwt through July. The average DMC margin for the year is forecast at $7.98 per cwt.
The January DMC margin was $7.94 cwt, triggering Tier I indemnity payments at $9.50, $9, $8.50 and $8 DMC coverage levels. Affecting actual DMC indemnity payments, the 2023 sequestration reduction rate is 5.7%.
DMC program indemnity payments on January 2023 milk marketings enrolled in the program were estimated at nearly $57.2 million, according to the latest update from the USDA’s Farm Service Agency (FSA). January DMC payments averaged $3,417 per dairy operation enrolled in 2023. Wisconsin led all states in January DMC indemnity payments at $12.82 million. That was followed by: California – $5.54 million, New York – $5.45 million, Minnesota – $4.87 million and Pennsylvania – $4.67 million.
Based on latest enrollment data as of March 6, 16,739 dairy operations have enrolled in the 2023 DMC program, representing about 73% of operations with established production history. Milk volume covered under the program totals 155.9 billion pounds, almost 78% of production history established in 2023. The report does not include enrollment in the Supplemental DMC program.
Dairy Revenue Protection (Dairy-RP)
Dairy producers managing risk through the Dairy Revenue Protection (Dairy-RP) program are currently eligible to cover revenue from the third quarter of 2023 through the third quarter 2024. Coverage for the second quarter of 2023 closed on March 15.
Dairy-RP coverage cannot be purchased on days when major USDA dairy reports are released that could impact markets, including Milk Production, Cold Storage and Dairy Product reports (see Calendar). Dairy-RP is also not available on days when applicable futures contracts move limit-up or limit-down, or on days when Chicago Mercantile Exchange (CME) trading is closed due to holidays.
The market changes daily and Dairy-RP endorsements must be purchased between the CME market closing and the next CME opening.
Livestock Gross Margin for Dairy (LGM-Dairy)
Livestock Gross Margin (LGM-Dairy) is another subsidized margin insurance program administered by the USDA’s RMA.
LGM-Dairy provides protection when feed costs rise or milk prices drop and can be tailored to any size farm. LGM-Dairy uses futures prices for corn, soybean meal and milk to determine the expected gross margin and the actual gross margin. LGM‑Dairy is similar to buying both a call option to limit higher feed costs and a put option to set a floor on milk prices.
Coverage can be purchased on expected milk marketings over a rolling 11-month insurance period. For example, the coverage period available during the final week of March contains the months of May 2023 through March 2024.
Sales periods for the LGM-Dairy program are open on a weekly basis. Unlike Dairy-RP, LGM-Dairy is available even if a sales period falls on the day of a USDA report. Premium payments are due at the end of the insurance period.
Protecting Your Profits update
Pennsylvania Center for Dairy Excellence (CDE) risk education manager Zach Myers hosted his monthly “Protecting Your Profits” update on March 22, reviewing current milk market data and providing updates to guide decision-making and risk management strategies. Visit the CDE website to listen to the free podcast and subscribe to get notified when new episodes are released.
FMMO data, webinar
Affecting February margins, administrators of the 11 Federal Milk Marketing Orders (FMMOs) reported February 2023 prices and pooling data. A shorter month meant less milk was pooled, but other trends remained mostly the same. Uniform or blend prices were lower, producer price differentials (PPDs) were slightly higher, the “average-of” Class I mover formula provided a small benefit on Class I prices, and more Class IV milk returned to the pool.
Read: FMMOs stayed on trend in February
The National Milk Producers Federation’s (NMPF) National Young Cooperators Program will host a webinar to provide updates on the FMMO system and the next steps in a hearing process. The webinar will be held March 30, 1-1:45 p.m. (Eastern time) by Peter Vitaliano, NMPF vice president of economic policy and market research, and Stephen Cain, NMPF director of economic research and analysis. Participation is free but registration is required.
February milk production
With wet weather impacting cow comfort and productivity in the West, February 2023 growth in cow numbers was partially offset by a minimal increase in milk output per cow, slowing overall growth in milk production compared to a year ago. Read: Weather puts lid on February milk production growth
WASDE outlook
The USDA’s monthly World Ag Supply and Demand Estimates (WASDE) report, released March 8, reduced the milk production estimate for 2022 but raised the forecast for 2023, and also lowered the 2023 Class III and all-milk price forecasts.
Read: USDA boosts 2023 milk production outlook, reduces Class III, all-milk price projections
Check the Progressive Dairy website for updates affecting milk prices as they become available.
