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Dairy Margin Coverage

September 20 is the last day for dairy farmers to enroll in the Dairy Margin Coverage program with your local Farm Service Agency office. Even dairy farmers who have signed up for the program can change their coverage levels or the one year or five-year option for the program until September 20.

Just a reminder, Dairy Margin Coverage is part of the new farm bill. It is the replacement for Margin Protection Program (MPP). DMC uses a nation-wide formula for feed cost and subtracts this from the US all milk price. This is the national milk price to feed margin and is calculated monthly. The premiums for DMC are substantially reduced from MPP, Tier 1 is under 5 million pounds. Tier II is 5 million pounds and up. DMC premiums are listed in Table 1. Discounted premiums are available for Tier I if a farm signs up for five consecutive years of DMC in 2019 – which is a 25 percent reduction in the premium cost. If a dairy farm participated in MPP-Dairy during 2014 through 2017, the farm can get 75 percent of premiums paid as a credit towards future DMC premiums. If a dairy wants the credit from MPP-Dairy as cash, they either do not want to sign up for DMC or they no longer milk cows, they can take 50 percent of the MPP-Dairy premium difference as cash. The amount of coverage is 5 percent to 95 percent of the dairies’ largest production in 2011, 2012 or 2013.

Changes from MPP-Dairy to new DMC:
  • Reduced premiums
  • Tier I increased from up to 4 million pounds to up to 5 million pounds
  • Expands coverage from 25-90 percent to 5-95 percent of production
  • Increases margin coverage from a max of $8.00 to $9.50
Table 1 shows the premiums for each coverage level, both for Tier 1, under 5 million pounds, and Tier 2, over 5 million pounds. Discounted Tier 2 shows the discount for the 5-year commitment.

Margin Covered Tier I Tier II Discounted Tier I
4.00 $/cwt $/cwt $/cwt
4.50 0.0025 0.0025 0.0019
5.00 0.005 0.005 0.0038
5.50 0.03 0.1 0.0225
6.00 0.05 0.31 0.0375
6.50 0.07 0.65 0.0525
7.00 0.08 1.107 0.06
7.50 0.09 1.413 0.0675
8.00 0.1 1.813 0.075
8.50 0.105 -- 0.0788
9.00 0.11 -- 0.0825
9.50 0.15 -- 0.1125

Table 2 shows the margins.  The highlighted months are known what the margin is, and the second half of the year are estimates. 

DMC Payment 
@ $9.50
January $7.71 $1.79
February $7.91 $1.59
March $8.66 $0.84
April $8.82 $0.68
May $9.00 $0.50
June $8.63 $0.87
July $9.48 $0.02
August $9.60 $0.00
September $9.65 $0.00
October $10.00 $0.00
November $10.19 $0.00
December $10.19 $0.00

For a dairy farm that produces 1,500,000 pounds annually at the $9.50 coverage level and 95th percentile, the 2019 premiums will be $2,137.50 plus $100 administrative fee, or with the five-year sign-up, the fees will be reduced to $1,703.13. Their expected payment will be $7,457.50 for the year. For a dairy who produces 6 million pounds annually at the $9.50 coverage level for Tier 1 and $4.00 level for Tier 2 at the 95 percent coverage level; their expected premium with the $100 administrative fee is $7,600.00. If they commit to the five-year sign-up, the premiums are reduced to $5,725.00 with their expected payment to be $26,166.67.

These calculations were made with the help of the USDA 
DMC Decision Tool

Do not forget, the Minnesota Department of Agriculture has a rebate in place to help cover the 2019 DMC premiums. To be eligible for this rebate you must be a dairy farmer in Minnesota and sign-up for the 5-year commitment, fill out the form that your FSA office will have, and show proof of your 2018 milk production from your creamery. This rebate is limited to the dairy farms first 5 million pounds of production.

Dairy farmers have a few weeks to sign-up for the program. Look at the numbers to determine if this program is helpful to your dairy. 

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