While the Dairy Margin Coverage (DMC) program has been extended through the end of 2024, the date for enrolling in the program is still unknown. On Jan. 22, John Berge, USDA acting deputy administrator for farm programs, stated the DMC program software updates will be announced by March. The software is required to make milk production history modifications for this year’s coverage period. (Read: DMC program software update likely in February or March)
In the meantime, here’s Progressive Dairy’s look ahead at important dates, reports and advice affecting risk management decisions, as well as other information impacting your milk check in February.
DMC program
The December 2023 DMC margin and indemnity payments will be announced Jan. 31, with the January 2024 DMC margin calculated Feb. 29.
At $9.58 per hundredweight (cwt), the November DMC margin did not trigger Tier I nor Tier II indemnity payments.
As of Jan. 2, DMC indemnity payments distributed through the USDA’s Farm Service Agency (FSA) for milk marketings through the first 11 months of 2023 (January-November) had reached about $1.27 billion. All DMC indemnity payments are subject to a 5.7% sequestration deduction.
Based on latest enrollment data as of Nov. 8, 2023, a total of 17,085 dairy operations are enrolled in the 2023 DMC program, representing about 74% of operations with established production history. Annual milk volume covered under the program totals 154.6 billion pounds, about 77% of production history established in 2023.
As of Jan. 24, December 2023 margin currently forecasts at $8.88, which would trigger Tier I indemnity payments for producers enrolled at the $9 and $9.50 per cwt coverage levels. While December data is yet to be finalized, the average DMC margin forecast for 2023 was $6.74, with low May, June and July margins weighing down the value.
Dairy Revenue Protection (Dairy-RP)
Producers managing risk through Dairy-RP are eligible to cover revenue quarterly. In February, Dairy-RP coverage is available for the second quarter of 2024 (April-June) through the third quarter of 2025. Coverage for the second quarter of 2024 closes on March 15.
The market changes daily and Dairy-RP endorsements must be purchased between the Chicago Mercantile Exchange (CME) market closing and the next CME opening. Dairy-RP is also not available on days when applicable futures contracts move limit-up or limit-down, or on days when CME trading is closed due to holidays. In February, that includes Presidents Day (see Calendar).
Also, Dairy-RP coverage cannot be purchased on days when major USDA dairy reports that could impact markets are released. This includes Milk Production, Cold Storage and Dairy Product reports.
According to HighGround Dairy’s Curtis Bosma, the final quarter of 2023 marked another period of strong Dairy-RP indemnity payments. With 25% of the U.S. milk supply covered by Dairy-RP, estimated indemnities for the quarter averaged $1.11 per cwt, the fifth highest to date. This marks the fourth consecutive quarter of indemnity payments averaging over $1 per cwt.
Most indemnities were paid based on lower Class III prices. At the 95% coverage level using the class pricing option, fourth quarter 2023 indemnities would have been triggered 95% of the time with Class III selected (ignoring yield adjustment factors). In contrast, Class IV prices finished with strength, settling near contract highs and causing zero available booking days to trigger payments at the 95% coverage level.
For the entirety of 2023, indemnity payments averaged roughly $1.41 per cwt, generating the most revenue to producers in a single year since the program’s inception. Considering the premium cost, producers netted an average of $1 per cwt from Dairy-RP for 2023.
Livestock Gross Margin for Dairy
Livestock Gross Margin for Dairy (LGM-Dairy) is another subsidized margin insurance program administered by the USDA’s Risk Management Agency (RMA).
LGM-Dairy provides protection when feed costs rise or milk prices drop, and can be tailored to any size farm. This program uses futures prices for corn, soybean meal and milk to determine the expected gross margin and the actual gross margin. LGM-Dairy is similar to buying both a call option to limit higher feed costs and a put option to set a floor on milk prices.
Coverage can be purchased on expected milk marketings over a rolling 11-month insurance period. For example, the coverage period available during the final week of January includes months of March through January 2025.
Sales periods for the LGM-Dairy program are open on a weekly basis. Unlike Dairy-RP, LGM-Dairy is available even if a sales period falls on the day of a USDA report. Premium payments are due at the end of the insurance period.
Production and price outlooks
- U.S. milk production declined once again in December, continuing the trend of below year-ago output for a sixth consecutive month, according to the USDA’s December Milk Production report released Jan. 24. At the same time, preliminary cow estimates for December 2023 bring the U.S. dairy herd to its smallest dating back 43 months to June 2020. The cow number estimates were at 9.357 million head, down 39,000 from the year prior. (Read: Milk production stayed on downward slope to end 2023)
- The Federal Milk Marketing Order (FMMO) uniform milk prices slipped lower in December due to a combination of lower milk class prices and continued depooling of Class IV milk. (Read: December 2023 FMMO uniform prices lower)
- The USDA’s monthly World Ag Supply and Demand Estimates (WASDE) report lowered milk production estimates for 2023 with the 2024 forecast also lowered due to lower milk cow numbers and slow growth in milk per cow. (Read: USDA milk production, price outlooks remain stagnant)
Check the Progressive Dairy website for updates affecting milk prices as they become available.
