The USDA National Agricultural Statistics Service (NASS) released its latest Ag Prices report on April 28, including factors used to calculate March 2023 Dairy Margin Coverage (DMC) margins and indemnity payments. A declining U.S. average milk price offset lower average costs for corn, soybean meal and alfalfa hay, driving the milk income margin to its lowest level since August 2021.
March 2023 DMC at a glance
DMC program margin factors compared to previous month:
- Alfalfa hay: $314 per ton, down $10 from February 2023
- Corn: $6.67 per bushel, down 13 cents
- Soybean meal: $484.40 per ton, down $16.13
- Total feed costs: $15.02 per hundredweight (cwt), down 39 cents
- Milk price: $21.10 per cwt, down 50 cents
- Margin above feed cost: $6.08 per cwt, down 11 cents
Source: USDA Farm Service Agency, National Ag Statistics Service and Ag Marketing Service, April 28, 2023
Milk prices lower
The March 2023 announced U.S. average milk price fell 50 cents from February to $21.10 per cwt, the lowest since November 2021.
March milk prices were lower than the month before in 19 of the 24 major dairy states, led by declines of $1 or more in Arizona, California, Florida, Georgia, Indiana, Pennsylvania and Virginia. Month-to-month prices were minimally higher in just five states: Idaho, Iowa, Minnesota, South Dakota and Wisconsin.
High price for the month was in Florida at $24.40 per cwt; average prices were below $20 per cwt in Kansas and New Mexico.
Compared to a year earlier, March 2023’s U.S. average milk price was down $4.50 per cwt, led by declines of $5 or more in in Arizona, Iowa, New Mexico, South Dakota and Washington.
Feed costs lower
The DMC margin weakened even though national average costs were lower for all major feedstuffs:
- At $6.67 per bushel, the average price for corn was 13 cents lower than a month earlier.
- The average cost of soybean meal (SBM) declined to $484.40 per ton, down $16.13 from February.
- The March average price for dairy-quality alfalfa hay was $314 per ton, down $10 from the previous month.
The DMC 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.
March feedstuff prices yielded an average DMC total feed cost of $15.02 per cwt of milk sold, down 39 cents from February.
Indemnity payments large
At $6.08 per cwt, the March DMC margin triggers Tier I indemnity payments at all coverage levels from $6.50 to $9.50 per cwt, with a top of $3.42 per cwt at the maximum $9.50 coverage level. Other indemnity payments are: $9 coverage level – $2.92; $8.50 – $2.42; $8 – $1.92; $7.50 – $1.42; $7 – 92 cents; and $6.50 – 42 cents. Tier II indemnity payments are triggered at $6.50 to $8 coverage levels.
All 2023 DMC indemnity payments are subject to a 5.7% sequestration deduction.
Looking ahead
The March 2023 margin continues to be what looks like a lengthy stretch of high indemnity payments. Based on the DMC decision tool as of April 27, the monthly DMC margin is projected to be near or below $6 per cwt in April through June and below $9.50 through October, averaging $7.43 per cwt for the year.
As of April 3, 16,824 dairy operations had enrolled in the 2023 DMC program, representing about 72.6% of operations with established production history. Milk volume covered under the program totaled 156.6 billion pounds, about 78.3 of production history. January-February indemnity payments were estimated at about $179.3 million.
The enrollment figures do not include enrollment in the Supplemental DMC program.
Other operating costs mixed
Outside of feed – and not factored into DMC margins – other costs were mixed. The March index of prices paid for commodities and services, interest, taxes and farm wages was unchanged from February but up 3.6% from March 2022.
Machinery costs rose 0.1% from February and were up 6.7% from March a year ago. The March fuel cost index was down 3.4% from the previous month and 23% less than a year earlier, with lower diesel prices offsetting higher gasoline prices. Fertilizer prices dipped 3% from February and 14% from March 2022.
Market cow prices up again
U.S. average prices received for cull cows (beef and dairy, combined) in March averaged $95.70 per cwt, up $6.20 from February and the highest monthly average since September 2015.
The strong beef prices and tight milk income margins were incentive for increased U.S. dairy cull cow marketing, pushing the monthly total to its highest total since 1986, the year of the whole-herd buyout program.
Read: Economic update: March dairy cull cow marketing highest since 1986
Read also: Dairy risk management calendar: May 2023
