The USDA National Agricultural Statistics Service (NASS) released its latest Ag Prices report on Aug. 31, including factors used to calculate July 2023 Dairy Margin Coverage (DMC) margins and indemnity payments. Compared to a month earlier, U.S. average feed costs were mixed and milk prices were lower, keeping 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).
July 2023 DMC at a glance
DMC program margin factors compared to previous month:
- Alfalfa hay: $288 per ton, down $22 from June 2023
- Corn: $6.22 per bushel, down 27 cents
- Soybean meal: $443.15 per ton, up $29.69
- Total feed costs: $13.88 per cwt, down 37 cents
- Milk price: $17.40 per cwt, down 50 cents
- Margin above feed cost: $3.52 per cwt, down 13 cents
Source: USDA Farm Service Agency, National Ag Statistics Service and Ag Marketing Service, Aug. 31, 2023
Milk prices dip
The July 2023 announced U.S. average milk price fell another 50 cents from June to $17.40 per cwt, the lowest since March 2021. It was down $8.10 per cwt from July 2022.
July milk prices were lower than the month before in 23 of 24 major dairy states; the lone exception was Idaho, where prices were unchanged. Month-to-month declines were largest in Ohio and Oregon, both down $1 per cwt.
High prices for the month were in high Class I fluid milk utilization states of Florida ($22.70 per cwt), Georgia ($22) and Virginia ($21.60). Average prices were below $15 per cwt in Iowa ($14.80) and between $15-$16 per cwt in Minnesota, New Mexico, South Dakota and Wisconsin.
Compared to a year earlier, July 2023’s U.S. average milk price was down $8.10 per cwt, led by declines of $8.50 or more in Iowa, Minnesota, South Dakota, Texas, Utah, Washington and Wisconsin.
Feed costs mixed
National average costs for major feedstuffs were slightly lower:
- At $6.22 per bushel, the average price for corn was 27 cents lower than a month earlier and the lowest since January 2022.
- The average cost of soybean meal (SBM) jumped to $443.15 per ton, up $29.69 from June and the highest since April.
- The July average price for dairy-quality alfalfa hay was $288 per ton, down $22 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.
July feedstuff prices yielded an average DMC total feed cost of $13.88 per cwt of milk sold, down 37 cents from June.
Indemnity payments again large
At just $3.52 per cwt, the July 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 $5.98 per cwt at the maximum $9.50 coverage level.
Other indemnity payments are:
- $9 coverage level – $5.48
- $8.50 – $4.98
- $8 – $4.48
- $7.50 – $3.98
- $7 – $3.48
- $6.50 – $2.98
- $6 – $2.48
- $5.50 – $1.98
- $5 – $1.48
- $4.50 – 98 cents
- $4 – 48 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 $4,461 for each 1 million pounds enrolled. Year-to-date payments total nearly $21,242 per 1 million pounds covered at the maximum level.
Past payments
Those payments will add to mounting 2023 totals. DMC program indemnity payments on January-June DMC payments totaled nearly $610.6 million.
Based on latest enrollment data as of Aug. 14, 16,996 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 156.2 billion pounds, about 77% of production history established in 2023. The report does not include enrollment in the Supplemental DMC program.
Looking ahead
The milk income margin should improve in August DMC calculations (to be announced at the end of September). As of the close of futures trading on the Chicago Mercantile Exchange on Aug. 31, the DMC decision tool forecast an August margin of $5.66 per cwt.
Other operating costs mixed
Outside of feed – and not factored into DMC margins – other costs were mostly higher. The July index of prices paid for commodities and services, interest, taxes and farm wages was up 0.1% from June and unchanged from July 2022.
Machinery costs were up 0.1% from June and were up 3.2% from July a year ago. The July fuel cost index was up 2.7% from the previous month but 29% less than a year earlier. Fertilizer prices dipped 2.2% from June and 23% from July 2022.
Market cow prices hit eight-year high
A positive in the USDA Ag Prices report: U.S. average prices received for cull cows (beef and dairy, combined) in July averaged $111 per cwt, up $4 from June and the highest monthly average since July 2015.
