Margins appear encouraging with the recent swell in Class III prices and improved feed costs. Cheese exports to Mexico have also been critical for U.S. dairy producers as shipments to China and Southeast Asia have slowed. Yet, with extreme weather conditions and the continued spread of avian influenza, having a strategy to manage risk is essential.
“Following the recent surge in Class III prices and the decrease in feed costs, margins are looking highly favorable moving forward,” says Alex Gambonini of HighGround Dairy. “As these opportunities arise, we are encouraging our customers to take action.”
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 July.
Dairy Margin Coverage (DMC) program
The May 2024 DMC margin and indemnity payments will be announced June 28, with the June 2024 DMC margin calculated July 31.
For the second month this year, April’s DMC margin did not trigger a payment through the dairy risk management program. The margin was recorded at $9.60 per hundredweight (cwt), a stark difference to April 2023’s margin of $5.84 per cwt. (Read: April DMC margin is $9.60 per cwt)
As of June 24, the May 2024 margin forecast was at $11.38 per cwt, the beginning of a pleasant margin cushion expected through the remainder of the year. Such favorable margins haven’t been seen since 2022, when June’s margin was $11.92 per cwt. Current price forecasts predict the margin cresting in October at $13.70 per cwt to aid in a 2024 average of $11.66 per cwt. Despite this positive outlook, markets are subject to change.
Dairy Revenue Protection (Dairy-RP)
Producers managing risk through Dairy-RP are eligible to cover revenue quarterly. In July, Dairy-RP coverage is available for the fourth quarter of 2024 (October through December) through the third quarter of 2025 (July through September).
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 Production reports. This means that in July, there are no Dairy-RP sales on July 3-4 because of the USDA report released followed by the Fourth of July.
The USDA Risk Management Agency (RMA) released an updated handbook for administering Dairy-RP insurance. The Dairy Revenue Protection Insurance Standards Handbook is effective for 2025 and succeeding crop years.
Livestock Gross Margin for Dairy (LGM-Dairy)
LGM-Dairy is another subsidized margin insurance program administered by the RMA.
LGM-Dairy provides a protection when feed costs rise or milk prices drop and can be tailored to any size farm. The 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 marketing over a rolling 11-month insurance period. So the coverage period during July includes months of August 2024 through June 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.
The RMA has also released an updated handbook for this risk management program for 2025 and succeeding crop years. Similar to the handbook for Dairy-RP, the Livestock Gross Margin for Dairy Cattle Handbook provides procedures and instructions for administering the insurance program.
Production and price outlooks
- U.S. milk production has declined for 10 consecutive months in comparison to 2023’s data in the USDA’s latest report. In May, total U.S. milk production was down 0.9% to 19.68 billion pounds. (Read: Milk production decreases in USDA May estimates)
- The July 2024 advanced Class I base price was up $1.03 per cwt from June 2024 and $3.79 more than a year prior. This is the highest Class I base price since January 2023. (Read: July 2024 Class I base price rises to 19-month high)
- Individual Federal Milk Marketing Order (FMMO) uniform prices were mixed in May. While slight declines were noted in high fluid milk utilization areas, jumps in the Class III market helped offset the prices. (Read: May 2024 FMMO uniform prices linked to Class III price bounce)
- The 2024 milk production estimates were left unchanged in June’s report at 227.3 billion pounds. The forecasts included a slight adjustment to cow inventories offset by slower growth in milk output per cow. (Read: USDA outlook sees little change in 2024-25 milk production)
Check the Progressive Dairy website for updates affecting milk prices as they become available.
