The USDA National Agricultural Statistics Service (NASS) released its latest Ag Prices report on July 28, including factors used to calculate June 2023 Dairy Margin Coverage (DMC) margins and indemnity payments. A declining U.S. average milk price more than offset lower average overall feed costs, shrinking the milk income margin below the “catastrophic” floor of $4 per hundredweight (cwt), its lowest level since inception of the DMC program and its predecessor, the Margin Protection Program for Dairy (MPP-Dairy).
June 2023 DMC at a glance
DMC program margin factors compared to previous month:
- Alfalfa hay: $310 per ton, down $7 from May 2023
- Corn: $6.49 per bushel, down 5 cents
- Soybean meal: $413.46 per ton, down $10.12
- Total feed costs: $14.25 per cwt, down 22 cents
- Milk price: $17.90 per cwt, down $1.40
- Margin above feed cost: $3.65 per cwt, down $1.18
Source: USDA Farm Service Agency, National Ag Statistics Service and Ag Marketing Service, July 28, 2023
Milk prices drop again
The June 2023 announced U.S. average milk price fell another $1.40 from May to $17.90 per cwt, the lowest since September 2021. It was down $8.80 per cwt from June 2022.
June milk prices were lower than the month before in all 24 major dairy states. Month-to-month declines were largest in South Dakota (-$2.30), Minnesota (-$1.80) and Wisconsin (-$1.70).
High prices for the month were in Florida ($23.30 per cwt), Georgia ($22.20) and Virginia ($22.10). Average prices were below $16 per cwt in Iowa and Minnesota; between $16-$17 per cwt in Kansas, New Mexico, South Dakota and Wisconsin; and between $17-$18 per cwt in Michigan, Texas and Utah.
Compared to a year earlier, June 2023’s U.S. average milk price was down $8.80 per cwt, led by declines of $10 or more in Iowa, Minnesota, South Dakota and Wisconsin.
Feed costs dip
National average costs for major feedstuffs were slightly lower:
- At $6.49 per bushel, the average price for corn was 5 cents lower than a month earlier and the lowest since November 2022.
- The average cost of soybean meal (SBM) declined to $413.46 per ton, down $10.12 from May and the lowest since December 2021.
- The June average price for dairy-quality alfalfa hay was $310 per ton, down $7 from the previous month and the lowest since June 2022.
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.
June feedstuff prices yielded an average DMC total feed cost of $14.25 per cwt of milk sold, down 22 cents from May.
Indemnity payments huge
At just $3.65 per cwt, the June DMC margin triggers Tier I indemnity payments at all coverage levels, from the catastrophic price floor of $4 per cwt to the maximum coverage level of $9.50 per cwt. The top payment is $5.85 per cwt at the maximum $9.50 coverage level.
Other indemnity payments are:
- $9 coverage level – $5.38
- $8.50 – $4.85
- $8 – $4.35
- $7.50 – $3.85
- $7 – $3.35
- $6.50 – $2.85
- $6 – $2.35
- $5.50 – $1.85
- $5 – $1.35
- $4.50 – 85 cents
- $4 – 35 cents
Similar Tier II indemnity payments are triggered at $4 to $8 coverage levels.
All 2023 DMC indemnity payments are subject to a 5.7% sequestration deduction.
According to National All Jersey’s Erick Metzger, milk protected at the $9.50 per cwt level will realize indemnity payments over $4,300 for each 1 million pounds enrolled. Year-to-date payments total $16,780 per 1 million pounds covered at the maximum level.
Past payments
Based on latest enrollment data as of July 3, 16,929 dairy operations are enrolled in the 2023 DMC program, representing about 73% 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.
DMC program indemnity payments on May 2023 milk marketings enrolled in the program totaled about $172.3 million. January-May DMC payments totaled nearly $611.94 million, averaging $36,147 per dairy operation enrolled in 2023 (minus the 5.7% sequestration deduction).
Looking ahead
The milk income margin will continue to shrink in July DMC calculations (to be announced Aug. 31) before finally showing signs of recovery.
Dairy margins weakened over the first half of July as a sharp increase in projected feed costs more than offset a slight recovery in milk prices, according to Commodity & Ingredient Hedging LLC.
At of the close of trading on July 28, the current Chicago Mercantile Exchange (CME) Class III milk futures price was $13.81 per cwt, down $1.10 from June's Class III price, $5.62 below January and a whopping $11.98 below the $25.79 per cwt price just a year ago, noted Bob Cropp, professor emeritus at the University of Wisconsin – Madison, in his most recent Dairy Situation and Outlook report.
After July, milk prices should trend higher for the remainder of the year, said Cropp, who expressed more optimism than the latest USDA dairy price forecast.
“With the sensitivity to small changes in milk supply and/or demand, I think the probability is high for third-quarter and fourth-quarter prices to be higher than USDA’s forecast. But time will tell,” Cropp concluded.
Other operating costs mixed
Outside of feed – and not factored into DMC margins – other costs were mixed. The June index of prices paid for commodities and services, interest, taxes and farm wages was up 0.1% from May and up 0.8% from June 2022.
Machinery costs were up 0.6% from May and were up 4.3% from June a year ago. The June fuel cost index was down 3.7% from the previous month and 35% less than a year earlier, with lower diesel prices but higher gasoline prices. Fertilizer prices dipped 0.6% from May and 23% from June 2022.
Market cow prices hit $107 per cwt
There was one positive in the USDA Ag Prices report: U.S. average prices received for cull cows (beef and dairy, combined) in June averaged $107 per cwt, up $4 from May and the highest monthly average since August 2015.
