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Dave Natzke
Editor / Progressive Dairy

April 2023 DMC payments top $134 million

Dairy Margin Coverage (DMC) program indemnity payments on April 2023 milk marketings enrolled in the program will reach about $134.3 million, according to the latest update from the USDA’s Farm Service Agency (FSA). Indemnity payments for the first four months of 2023 will be nearly $439.7 million.

The April DMC margin was $5.84 per hundredweight (cwt), triggering Tier I indemnity payments at $6 to $9.50 coverage levels and Tier II indemnity payments at $6 to $8 DMC coverage levels.

Wisconsin led all states in January-April DMC indemnity payments, at $98 million. That was followed by California – $43.5 million, New York – $41.8 million, Minnesota – $37.5 million and Pennsylvania – $36.2 million. 

January-April DMC payments averaged $26,021 per dairy operation enrolled in 2023. All payments are subject to a 5.7% sequestration deduction.

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Based on latest enrollment data as of June 5, 16,897 dairy operations are enrolled in the 2023 DMC program, representing about 72.8% of operations with established production history. Annual milk volume covered under the program totals 156.1 billion pounds, about 78% of production history established in 2023. The report does not include enrollment in the Supplemental DMC program.

The May DMC margin and potential indemnity payments will be announced on June 30.

USDA boosts dairy export outlook

Despite economic headwinds, the value of 2023 U.S. dairy exports won’t be far below those in the record-setting year of 2022.

The latest USDA quarterly Outlook for U.S. Agricultural Trade report, released May 31, forecast the value of U.S. dairy exports at about $8.9 billion in fiscal year 2023 (FY 2023, Oct. 1, 2022 – Sept. 30, 2023). That’s up from the $8.8 billion projected last February and not far below the nearly $9.1 billion in dairy product values exported FY 2022.

The $100 million increase from last February’s outlook is attributed to higher-than-expected volumes of nonfat dry milk, cheese, lactose and whey.

FY 2023 U.S. dairy imports are forecast at $5.1 billion, up $500 million from February’s forecast and the FY 2022 total, based on higher unit values and volumes of butter and cheese. FY 2023 cheese imports are expected to hit $1.8 billion, $200 million more the previous forecast and up $265 million from FY 2022’s total.

As in previous quarterly outlook reports, the forecast for dairy trade differs from the rest of agriculture. The USDA’s May forecast estimated FY 2023 agricultural exports at $181 billion, down about $3.5 billion from the February outlook due to decreases in corn, wheat, beef and poultry.

FY 2023 imports were forecast at $198 billion, yielding an ag trade deficit of $17 billion. The U.S. last had a negative agricultural trade balance in 2019 (-$1.3 billion) and 2020 (-$3.7 billion).

Dairy margins erode to end May

Last week’s USDA announcement of Dairy Margin Coverage (DMC) program margin and indemnity payments showed April milk income margins continued a five-month decline. Look for May to extend that trend.

After a weak start to May, dairy income margins eroded further over the second half of the month as a decline in milk prices more than offset the impact of lower projected feed costs, according to Commodity & Ingredient Hedging LLC. 

In addition to abundant supplies of cheese, whey prices pressured Class III milk values, which are dropping to their weakest level since August 2020.

U.S. dairy producers are expected to suffer their worst margin losses since 2009, when massive herd liquidation occurred. There are already indications of increased cow culling in Western states, and this will likely expand into Central and Midwest regions soon, CIH noted. In 2009, it took 13 months before there was a significant recovery in milk prices, so this process may take time. 

RaboResearch: Weaker sales, slowing production growth

Signs of weakening demand for dairy are spreading across global markets, the cumulative effects of high food price inflation over the past 24 months, along with slowing economic activity in 2023, according to a new quarterly report from Rabobank. One notable exception is the U.S., where current consumer demand for dairy products remains firm. 

“Some price deflation in dairy could help sustain demand levels in key markets during the second half of 2023,” says Andrés Padilla, senior analyst for dairy at Rabobank.   

Global milk production is still rising but losing momentum, and that slower production increase could stabilize global market prices. Lower input costs are providing some relief to farm-level margins. However, lower milk prices in the U.S. have outpaced the decline in feed costs, putting farmers’ margins under additional pressure and into negative territory.

“Our current outlook for lower production in the EU (European Union) and U.S., with limited growth elsewhere, is likely to support global dairy prices in (the third quarter of 2023) and into 2024,” Padilla says.

IDFA: Dairy continues to deliver economic powerhouse

Not all the dairy economic news is cloudy: The U.S. dairy industry grew significantly over the past two years, adding nearly 60,000 new jobs, increasing average wages by 11% and increasing its total impact on the U.S. economy by $41 billion, according to the latest economic impact report from the International Dairy Foods Association (IDFA).

IDFA’s 2023 Economic Impact Study, which measures the combined impact of the dairy industry, showed the U.S. dairy industry’s economic impact totaled $793.75 billion.

The newly released figures indicate that the U.S. dairy industry now supports:

  • 3.2 million total jobs, including 1.078 million jobs in dairy product manufacturing, up from 1.018 million jobs in 2021
  • $49 billion in direct wages for workers in the dairy industry, up from $42 billion in direct wages in 2021
  • $72 billion in federal, state and local taxes (not including sales taxes paid by consumers), up from $67.1 million in 2021

The report, released at the beginning of National Dairy Month, is conducted every two years to quantify the industry’s impact on local, state and national economies. An online Dairy Delivers tool includes new data showcasing the dairy industry’s impact on every U.S. state and congressional district. Users can click on an interactive map of the U.S. to learn how dairy impacts their community. 

Coming up

Check the Progressive Dairy website for other updates:

  • The USDA’s next World Ag Supply and Demand Estimates report, including milk production and price forecasts and projected prices for major dairy feedstuffs, is released on June 9.
  • U.S. agricultural and dairy trade data information for April is released on June 8-9.
  • May 2023 Federal Milk Marketing Order uniform prices, producer price differentials and pooling data will be released on June 11-14.