As predicted, milk prices recovered some in April with Class III at $15.57 per hundredweight (cwt) during the last full week of the month and futures jumping more than $1 for May and June. Unpredictability is still expected in the marketplace, and producers are encouraged to enroll in the Dairy Margin Coverage (DMC) safety net program. Enrollment closes April 29. (Read: 2024 DMC program enrollment to begin Feb. 28)
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 May.
Dairy Margin Coverage program
The March 2024 DMC margin and indemnity payments will be announced April 30, with the April 2024 DMC margin calculated May 31.
At $9.44 per cwt, the February DMC margin triggered Tier 1 indemnity payments at $0.06 per cwt for producers that elected for the $9.50 per cwt coverage level. (Read: February DMC margin is $9.44 per cwt)
The net payment for the month of February was about $232, including the 5.7% sequestration fee, for dairy operations that maximize the Tier 1 cap. February’s payment, in addition to January’s payment of about $4,038, covers more than 50% of the total annual premium, making DMC an affordable safety net program.
February prices set the tone for an expected improvement to margins for the remainder of 2024. As of April 24, March 2024 margin is forecast at $10.28, which would not trigger any indemnity payments for producers enrolled in the program. Projections indicate improved margins for the remainder of the year, even with a tighter margin noted for April at $9.83 per cwt, although markets can change.
Dairy Revenue Protection (Dairy-RP)
Producers managing risk through Dairy-RP are eligible to cover revenue quarterly. In May, Dairy-RP coverage is available for the third quarter of 2024 (July through September) through the third quarter of 2025.
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 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 (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.
At the time of this writing, estimated indemnities for the first quarter of 2024 were $0.98 per cwt, with nearly 12.8 billion pounds of milk (22% of U.S. milk supply) covered under the insurance program. This enrollment marks the lowest volume enrolled since first quarter of 2020. (Read: Maximizing Dairy Revenue Protection: Insights from five years of data)
HighGround Dairy evaluated the indemnities and enrollment. They found that at the 95% coverage level using the class pricing option, indemnities would have been triggered 99% of the time with Class III selected. HighGround Dairy noted that this resulted in just four days that would not have triggered payments for Class III as opposed to Class IV, in which no days triggered payments.
Livestock Gross Margin for Dairy (LGM-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 April includes months of June through April 2025.
Sales period 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
- March 2024 statistically uniform milk prices were 30 to 87 cents per cwt higher in all Federal Milk Marketing Orders (FMMOs) compared to the month prior. The largest gains were posted in FMMOs with greater Class I utilization. (Read: March 2024 FMMO uniform prices inched higher)
- The FMMO advanced Class I base price is reversing course, and the “average-of” Class I mover pricing formula is taking its biggest hit since late 2022. (Read: Economic Update: May 2024 Class I base price declines)
- The USDA left 2023 milk production estimates unchanged, but reduced 2024 production expectations by 1 billion pounds in April’s report. (Read: Slower-than-expected growth in output per cow reduces milk forecast)
- The U.S. dairy herd is now the smallest since the first of the year with March estimates at 9.335 million head, down 98,000 from a year prior. (Read: Milk production declines in March USDA estimates)
Check the Progressive Dairy website for updates affecting milk prices as they become available.
