Sign-up for Dairy Margin Coverage ends April 29

MADISON, Wis. — Enrollment in the Dairy Margin Coverage program typically takes place in the fall.

Without the passing of a farm bill last year, DMC received an extension and enrollment was pushed back to the new year.

April 29 is the last day that farmers can sign up for the DMC program at a Farm Service Agency office.

“When you enroll for 2024, it will retroactively go back to January,” said Leonard Polzin, dairy markets and policy outreach specialist at the University of Wisconsin-Madison Extension. “We did trigger a payment in January and February, and you would receive that.”

During a webinar March 22, Polzin shared details of the program and reasons producers should consider signing up.

“This is a continuation of the previous program that was in place last year, and except for some small tweaks, the program remains the same,” he said. “Coverage levels and premiums have not changed and will continue for another 12-month period. Once a different farm bill goes through, we would look at changes at that time.”

Polzin said the ease and simplicity of the DMC program makes it compelling to consider.

“It’s not something you have to actively monitor like futures and options,” he said. “The FSA office takes care of knowing when payments are triggered and sending off the payments, etc.”

Following the same mechanics as last year, the program is based on the national average milk price, also known as the all-milk price, minus the value of the feed ration, which is the estimated price to produce 100 pounds of milk.

“There is no ration that perfectly fits everybody’s farm,” Polzin said. “The program tries to take the feed equivalent of fat, protein, carbohydrates and energy, and calculate them to find that ration for 100 pounds of milk.”

When enrolling in the program, Polzin said there are two things to consider: percentage of coverage and coverage level. Farms can insure 5%-95% of their historic production level. Polzin said most people choose the maximum amount. The coverage level ranges from $4-$9.50 per hundredweight of margin coverage, with most people selecting coverage on the higher end.

The first 5 million pounds of annual production is covered in Tier 1 of the program, and everything greater than that is covered in Tier 2. The margin coverage level for Tier 1 ranges from $4-$9.50 cwt, while Tier 2 ranges from $4-$8. Premiums are 0-15 cents cwt for Tier 1 and $0-$1.813 for Tier 2.

“The price is a fairly good deal for producers,” Polzin said. “When you compare the cost per hundredweight of DMC versus other products, it is quite cost competitive, especially in that first 5 million pounds of production.”

Polzin encouraged dairy farmers to use the DMC decision tool at dmc.dairymarkets.org to determine premiums and payments.

“Make sure you select the appropriate year, 2024, in the top left corner when using this site,” Polzin said.

The most significant change to the DMC program is the way that historic production is stated in sign-ups. Prior to this year, previous production history and supplemental production history were both listed. This year, the two have been combined and are being called DMC production history.

FSA has revised regulations to allow eligible operations to make a one-time adjustment to established production history. This adjustment combines previously established supplemental production history with DMC production history for farms participating in Supplemental DMC during a prior coverage year.

“It’s possible to include new supplemental history that you have not previously included by talking to someone at your FSA office,” Polzin said.

About 75%, or 17,000, of dairy operations in the U.S. enrolled in the DMC program in 2023 and received nearly $1.3 billion in payments, averaging $75,753 per operation.

“We’re probably going to hit that again this year,” Polzin said. “We’re very close to 100% participation in Wisconsin for dairies with established production history if you take out farmers who don’t sign up based on religious reasons. There is big utilization of the program, and we’re seeing quite a bit of benefit to producers when we come across years that are not so positive in margin.”

Polzin said Wisconsin, New York, Pennsylvania and California are major utilizers of Tier 1 coverage with substantial pounds enrolled in the program.

The all-milk price is hovering around the $20 mark, but feed costs have come down quite a bit, Polzin said. Corn has dropped off recently, and soybean meal is coming down as well, bringing relief to feed costs.

The current forecasted period is not showing any DMC payment triggers, and farmers have asked Polzin why they should sign up in 2024.

“We’ve seen corn prices fairly low in the past, but there is no guarantee they’re going to keep going down,” Polzin said. “They could very well come back up again too. If milk prices continue to have additional down pressure, then it’s not unrealistic to have payments triggered over the next 12 months.”

When looking at the forecast in recent enrollment periods, Polzin said it was not uncommon for a portion of the year to look like it would not generate many payments, but as time went along, a lot of payments were made. This happened in 2023.

“It’s really hard to be bullish on price when we have so much production capacity coming online in the U.S. at the moment,” Polzin said.

Between now and the first part of 2026, over $7 billion in production is slated to come online in dairy processing capacity. Tight demand and less-than-favorable exports give Polzin reason to believe the industry could see price pressure that will weigh negatively on milk prices.

“The price has been holding fairly steady recently, and while it’s better than 2023, it is not a resoundingly strong milk price,” Polzin said. “To say that we’re out of the bottom for the dairy price cycle with only good news going forward is a tough claim to make.”

Polzin said the market response has been on the supply side, as production remains strong despite shrinking cow numbers.

“Until we see a response on the demand side come back fairly strong, it is a big ask of the market to deliver high prices, especially at Class III to hold us at good margins for a period of time,” Polzin said. “There are enough unknowns at the moment to warrant signing up for DMC.”