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Dairy Margin Coverage

December 11, 2020 is the last day for dairy farmers to enroll in the Dairy Margin Coverage for 2021 with your local Farm Service Agency (FSA) office. Dairy farmers who have signed up for the five-year commitment last year and locked in their coverage need to go into FSA office and pay the $100 administrative fee to stay qualified. 

Dairy Margin Coverage is an FSA program that analyzes the difference between milk price and feed cost, the margin. The United States all-milk price is used. The feed cost is using a ration calculated by the USDA using a NASS pricing for corn and blended alfalfa hay. The soybean meal uses AMS prices from Illinois. Dairy farmers can elect to cover from 5 percent to 95 percent of their annual milk production from a margin coverage from $4.00 to $9.50 in $0.50 increments. The amount of milk production is the dairy’s highest annual production between 2011, 2012, or 2013.  If they are a new dairy, they can use either the USA average production per cow, or a year later than 2013. 

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.  The discounted Tier 1 is only applicable if the dairy signed up for the 5-year commitment or is a new dairy. 

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 calculated for 2020.  March, April, and May are the only months, so far, in 2020 to have a payment.  April and May were substantial payments.

Month Corn ($/bu) Blended Alfalfa Hay ($/ton) Soybean Meal ($/ton) All Milk ($/cwt) Final Feed Costs for DMC($/cwt) Milk Margin Above Feed Costs for DMC($/cwt) Payout @ $9.50
January 3.79 190.5 300.11 19.6 8.88 10.72 $-
February 3.78 190.5 295.28 18.9 8.84 10.06 $-
March 3.68 190 312.38 18 8.85 9.15 $0.35
April 3.29 195 295.39 14.4 8.37 6.03 $3.47
May 3.2 195 288.56 13.6 8.23 5.37 $4.13
June 3.16 190 288.66 18.1 8.11 9.99 $-
July 3.21 183 291.25 20.5 8.09 12.41 $-
August 3.12 182 290.18 18.8 7.97 10.83 $-
Let’s do some math. A dairy has a production history of 5 million pounds and selected the 95 percent coverage at the $9.50 level.

5,000,000 lbs. x 95% = 4,750,000 lbs.

4,750,000 lbs. / 100 = 47,500 cwt.

47,500 cwt. x $0.15 = $7,125 premium for DMC

If 5-year was locked in $7,125 x 75% = $5,343.75 premiums.

There is an additional $100 administrative fee.

 

For April, the margin was $6.03.

$9.50 - $6.03 = $3.47

47,500 cwt. / 12 months =3,958.333 cwt. per month

3,958.333 cwt. x $3.47 = $13,735.42 April payment from DMC

There are two decision tools for farmers to use. This first one is on the USDA’s website.

USDA DMC Decision Tool

University of Wisconsin-Madison DMC Decision Tool

Dairy farmers have a few weeks to sign-up for the program. University of Minnesota Extension highly recommends looking at the numbers to determine if this program is helpful for your dairy.  Risk management is a tool farmers cannot overlook.

For additional information, view a recording of FSA’s Calvin Gellatly and Lisa Campbell and University of Minnesota Extension ABM educator Nathan Hulinsky speaking about DMC.


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