Jason Hartschuh, Field Specialist, Dairy Management and Precision Livestock, Ohio State University Extension
The Dairy Margin Coverage (DMC) program through the Farm Service Agency sign-up deadline is quickly approaching on December 9th, 2023. DMC has payouts when the margin between the all-milk price and the DMC feed cost falls below the selected protection level of $4.00-9.50/cwt. Now is the time to consider if this program will improve your risk management in 2023. For the current year, 2022, 73.17% of Ohio dairy farms signed up for some level of coverage. While the first half of 2022 had strong margins well above $9.50/cwt, margins fell below the $9.50/cwt level in August to $8.08/cwt and in September was $8.62/cwt. The margins for the rest of 2022 have improved compared to earlier this month, but lower margins are predicted to continue into 2023.
With margin payouts currently forecasted for most of 2023, reviewing the DMC program could be beneficial for your operations bottom line. Table 1 shows the current forecasted all milk price, feed price, and the forecasted DMC margin for each month of 2023 from the DMC decision tool. The forecasted all milk price has a high of $23.53/cwt in November and bottoms out at $22.37/cwt in July, with a yearly average of $22.86/cwt. At the same time, forecasted average yearly feed cost is $13.59/cwt, reaching its highest in January at $14.53/cwt, and its lowest really depends on next year’s crop but is currently seen in December at $12.92/cwt. After reviewing these milk and feed cost forecasts, the margin forecast ranges from $8.65-10.48/cwt. After reviewing Table 1, you can start to make informed decisions about what level of margin coverage to utilize.
The DMC is a two-tiered program with you needing to make decisions on your production history below 5 million pounds, separate from your production above 5 million pounds. The premium cost for the first 5 million pounds is much more reasonable, with the $9.50/cwt coverage level costing $0.15 per cwt. With the current forecast on 5 million pounds of coverage, the producer premium is about $7,481, but the net total payout is about $22,200. The premium cost is covered by the payout during the first three months.
For production over 5 million pounds, the maximum coverage is $8.00/cwt, but the premium is $1.813/cwt. This coverage needs thought about carefully. There are no months below the $8.00 margin level at this time. This means you may only want to use the $4.00 margin coverage that does not have a premium or maybe the $5.00 margin which has a premium of $0.005/cwt in case the margin gets even worse for production history over 5 million pounds. Remember this is only a forecast, so hopefully milk price improves and so does income over feed cost margins so that the program doesn’t have payouts for all of 2023.
The DMC program does allow producers to participate in the other subsidized risk management programs that are administered through USDA-Risk Management Agency. Those programs include the Dairy Revenue Protection program, which allows producers to use a Class III, Class IV, or component blend futures-based program to set a floor under their milk price by quarter. Another program more like DMC is the Livestock Gross Margin-Dairy that allows producers to use Class III milk, corn, and soybean meal futures to lock in a margin above feed cost. These programs are available to all producers, regardless of pounds of milk shipped per month but could be a much better option for milk production over 5 million pounds.
Table 1. Forecasted all milk price, feed price, and DMC margin for each month of 2023.1
|Month||All Milk Price Forecast ($/CWT)||Corn Price Forecast ($/BU)||Premium/Supreme Alfalfa Hay Price Forecast ($/Ton)||Soybean Meal Price Forecast ($/Ton)||Feed Cost Forecast ($/CWT)||DMC Margin Forecast ($/CWT)|
1November, 2022 margin forecast from dmc.dairymarkets.org.