As we look to the last month of the year, milk prices are trending lower than the previous months’ highs with milk production up year over year, new cheese plants online and holiday buying finishing up noted as a few influencing factors. Yet margins continue to look favorable.
“Moments like this make risk management crucial,” says Alex Gambonini of HighGround Dairy. “Producers should continue to monitor these markets and take advantage when opportunities arise.”
Here’s Progressive Dairy’s look at important dates, reports and advice affecting risk management decisions, as well as other information impacting the milk check in November.
Dairy Margin Coverage (DMC) program
The October 2024 DMC margin and indemnity payment will be announced Friday, Nov. 29, with November’s margin calculated Tuesday, Dec. 31.
September’s DMC margin at $15.57 per hundredweight (cwt) became the highest margin since the program’s inception in 2019. At this margin, the September DMC margin was $6.07 above the $9.50 per cwt top coverage level in Tier 1, and resulted in yet another month of no indemnity payments in 2024. (Read: September DMC margin is record-shattering at $15.57)
As of Nov. 22, the October 2024 margin forecasts are predicting a margin of $14.91 per cwt as lower milk prices push the margin down. Feed costs are expected to rise some with corn and alfalfa prices increasing in October. Still, at this margin, no indemnity payment will be triggered.
With three months left to report in 2024, the year’s average margin is taking shape. Again, as of Nov. 22, the estimated average margin for the year is at $11.80 per cwt as milk prices shake out to $22.54 per cwt and feed costs come in at $10.73 per cwt.
Dairy Revenue Protection (Dairy-RP)
Dairy producers managing risk through Dairy-RP are eligible to cover revenue quarterly, up to five nearby quarters. In December, Dairy-RP coverage is available for the first quarter of 2025 (January through March) through the first quarter of 2026. Sales of first quarter coverage ends Dec. 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 not available on days when applicable futures contacts 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.
Recent markets trends suggest Dairy-RP coverage may be beneficial.
“Class III and Class IV markets have trended lower over the past month,” Gambonini says, due to production growth, expanded processing capacity and seasonal purchases. “While this price decline poses challenges, it also presents an opportunity for those with [Dairy-RP] coverage, who may receive indemnity payments if prices remain low.”
Livestock Gross Margin for Dairy (LGM-Dairy)
LGM-Dairy is another subsidized margin insurance program administered by the USDA’s Risk Management Agency (RMA).
The insurance program 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 December includes the months of January 2025 through November 2025.
The sales period for the LGM-Dairy program is 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
- The preliminary estimate of overall October 2024 milk production was higher than in September as well as the same month a year ago. (Read: Milk production slightly higher than year ago for third consecutive month)
- Federal Milk Marketing Order (FMMO) Class II, III and IV milk prices were down compared to a month earlier in a report released Oct. 30. (Read: October FMMO milk class prices dip)
- FMMO regional uniform milk prices were mixed in October, with prices dipping from September peaks in many areas. (Price and pooling factors weigh on October FMMO uniform milk prices)
- Lower cow numbers for the third quarter of 2024 were more than offset by higher milk output per cow. (USDA forecasts offer varied outlook for dairy’s financials)
- The USDA Agricultural Marketing Service (AMS) released their FMMO final decision on Nov. 12 to be voted on by producers. (Read: FMMO modernization: USDA releases final decision, goes to producer referendum)
Check the Progressive Dairy website for updates affecting milk prices as they become available.
