Dairy Margin Coverage Enrollment Remains Delayed

In June and July 2023, the Dairy Margin Coverage (DMC) program’s catastrophic coverage margin level of $4 per hundredweight was breached for the first two times since the program’s 2019 beginnings. For every month in 2023, excluding November, persistent above-average feed costs and a depressed all milk price resulted in margins below $9.50, the upper hundredweight program margin. Despite the extension of 2018 farm bill programs through September of this year, dairy farmers are still waiting for DMC enrollment for 2024 to open. In this Market Intel we review the latest on the DMC enrollment delay and review cost conditions creating cash flow concerns for farmers.

The DMC program provides a level of risk protection to dairy producers under low margin conditions, whether caused by low milk prices, high feed costs, or both. This voluntary program provides payments when the calculated national margin falls below a producer’s selected coverage trigger. The margin is the difference between the average price of feedstuffs (the price of a ration of hay, corn and soybean meal) and the national all milk price. Coverage is available for margins between $4 and $9.50 under a Tier I CAT (catastrophic) level or between $4 and $8 for Tier II, in 50-cent increments. Tier-one coverage is capped at 5 million pounds of production.

As noted earlier, in 2023 we saw the lowest DMC margins on record when June and July surpassed the program’s “catastrophic” $4 margin for the first and second time since the program began in 2019. Catastrophic coverage is a premium-free program option, meaning there is almost no risk to the producer enrolling besides a $100 administrative fee, and signals dire margin situations. All 17,085 dairy farm operations enrolled in 2023 DMC (about 80% of all U.S. dairy operations) receive payments for months when the catastrophic margin is triggered. Margins steadily improved between August and November atop a modest but much-welcomed decline in feed costs and slightly improved all milk price. The August $6.46 per hundredweight margin grew to $8.44 per hundredweight in September, $9.44 per hundredweight in October and $9.58 per hundredweight in November. December’s calculations, however, bucked this upward margin trend, dropping back below $9.50 per hundredweight to $8.44 per hundredweight, resulting in payments for producers holding policies with protection at the $8.50 level or higher.

FSA reports two main factors for the delay. The first is a requirement to publish a new rule in the Federal Register extending Supplemental Dairy Margin Coverage (SMDC) for 2024. SMDC was first authorized under the Consolidated Appropriations Act of 2020, and allows dairy farmers to adjust production history elections based on 75% of the difference between 2019 marketings and the old base calculation (2011-2013 milk marketings). This change allows operations to opt for higher milk production coverage if changes to herd size were made since the 2011-2013 basis years (within the 5-million-pound limitation). The issue being when originally signed into law, SDMC would apply to 2021 (retroactively), 2022 and 2023 calendar years with no coverage stipulated for further years. Farm bill extension language extends SDMC for 2024 but the regulatory process requires a new agency rule be published before enrollment can open. The second factor is software and database updates needed to make milk production history modifications for 2024 program implementation. FSA has made assurances that delays in enrollment will not impact full-year enrollment and farmers will receive retroactive protection for all months DMC is delayed.

Each month DMC is delayed gives dairy farmers more time to track market information including feed costs and milk prices before they must make their enrollment decision. However, farmers’ biggest concern is the delay in payment when it is needed most, that is, when margins are tightest and cash flow is most strained.

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