The USDA National Agricultural Statistics Service (NASS) released its latest Ag Prices report on June 30, including factors used to calculate May 2023 Dairy Margin Coverage (DMC) margins and indemnity payments. Once again, a declining U.S. average milk price more than offset lower average overall feed costs, shrinking the milk income margin to its lowest level since inception of the DMC program and its predecessor, the Margin Protection Program for Dairy (MPP-Dairy).
May 2023 DMC at a glance
DMC program margin factors compared to previous month:
- Alfalfa hay: $317 per ton, up $2 from April 2023
- Corn: $6.54 per bushel, down 16 cents
- Soybean meal: $423.58 per ton, down $33.67
- Total feed costs: $14.48 per hundredweight (cwt), down 38 cents
- Milk price: $19.30 per cwt, down $1.40
- Margin above feed cost: $4.83 per cwt, down $1.01
Source: USDA Farm Service Agency, National Ag Statistics Service and Ag Marketing Service, June 30, 2023
Milk prices drop
The May 2023 announced U.S. average milk price fell $1.40 from April to $19.30 per cwt, the lowest since September 2021.
May milk prices were lower than the month before in 21 of 24 major dairy states, with prices up slightly in just three high Federal Milk Marketing Order (FMMO) Class I utilization states: Florida, Georgia and Virginia. Largest declines were in high FMMO Class III utilization states of Minnesota and South Dakota (-$3) and Iowa and Wisconsin (-$2.50).
High price for the month was in Florida at $24.80 per cwt. Average prices were below $19 per cwt in Iowa, Kansas, Minnesota, New Mexico, South Dakota and Wisconsin.
Compared to a year earlier, May 2023’s U.S. average milk price was down $7.90 per cwt, led by declines of $9 or more in in Iowa, Minnesota, South Dakota and Wisconsin.
Feed costs dip
National average costs for major feedstuffs were mixed, with a lower soybean meal (SBM) and corn price offsetting a small increase for alfalfa hay:
- At $6.54 per bushel, the average price for corn was 16 cents lower than a month earlier.
- The average cost of SBM declined to $423.58 per ton, down $33.67 from April.
- The May average price for dairy-quality alfalfa hay was $317 per ton, up $2 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.
May feedstuff prices yielded an average DMC total feed cost of $14.48 per cwt of milk sold, down 38 cents from April.
Indemnity payments
At $4.83 per cwt, the May DMC margin triggers Tier I indemnity payments at all coverage levels from $5 to $9.50 per cwt, with a top payment of $4.67 per cwt at the maximum $9.50 coverage level. Other indemnity payments are: $9 coverage level – $4.17, $8.50 – $3.67, $8 – $3.17, $7.50 – $2.67, $7 – $2.17, $6.50 – $1.67, $6 – $1.17, $5.50 – 67 cents and $5 – 17 cents. Similar Tier II indemnity payments are triggered at $5 to $8 coverage levels.
According to National All Jersey’s Erick Metzger, each 1 million pounds of milk production history covered at the Tier I $9.50 per cwt level will receive $3,488.10 in May indemnity payments. Year-to-date indemnities total $12,414.63 per 1 million pounds enrolled at the highest level of Tier I coverage.
All 2023 DMC indemnity payments are subject to a 5.7% sequestration deduction.
Looking ahead
The May 2023 margin continues to be what looks like a lengthy stretch of extremely small margins and high indemnity payments into July-August. Based on the DMC decision tool as of June 29, forecast margins dip to about $4 in June and July.
As of June 5, 16,897 dairy operations had enrolled in the 2023 DMC program, representing about 72.8% of operations with established production history. Milk volume covered under the program totaled 156.1 billion pounds, about 78% of production history. January-April indemnity payments were estimated at about $439.4 million and averaged about $26,021 per participating dairy operation.
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 May index of prices paid for commodities and services, interest, taxes and farm wages was down 0.6% from April but up 0.9% from May 2022.
Machinery costs were up 0.1% from April and were up 5.1% from May a year ago. The May fuel cost index was down 5.9% from the previous month and 30% less than a year earlier, with lower diesel prices and gasoline prices. Fertilizer prices dipped 4.1% from April and 26% from May 2022.
Market cow prices top $100 per cwt
U.S. average prices received for cull cows (beef and dairy, combined) in May averaged $103 per cwt, up $3.70 from April and the highest monthly average since September 2015.
