Dairy cows

Lower global milk production will lead to higher dairy prices in the coming months, analysts predict.

USDA, American Farm Bureau and National Milk Producers Federation are all encouraging dairy producers, big and small, to take a look at the new Dairy Margin Coverage Program.

Established in the 2018 Farm Bill, the program replaces the Margin Protection Program — which most agree did not live up to expectations.

DMC is a federally subsidized program to insure dairymen’s margins between a national all-milk price and a national feed-cost calculation. Sign-up began June 17 and is open until Sept. 20.

While the program is geared for producers with 200 cows or fewer — producing 5 million pounds of milk or less annually — it can offer some benefit for larger producers.

USDA is projecting an indemnity payment of about $24,000 this year on a producer’s first 5 million pounds of annual production history insured at a $9.50 margin at a cost of $7,600.

That is likely to attract interest from larger producers who lost faith in MPP after paying substantial premiums and seeing little to no payout despite dismal margins.

Joaquin Contente, who milks 850 cows in Hanford, Calif., said MPP was a “miserable failure” but he’s going to sign up 5 million pounds of his production at the $9.50 margin level.

“It’s going to give me a little bit of insurance. The market is so cyclical, I should get something out of it,” he said.

Indemnity payments on the first 5 million pounds at the $9.50 coverage level have already been determined for the first four months of 2019. As of June 20, USDA is forecasting the program’s calculated margin will only rise above $9.50 in October and November.

Contente won’t be purchasing buy-up coverage above the no-cost, $4 insured margin for the remainder of his production, however.

DMC is an improvement over MPP, but it’s just not geared for larger producers, he said.

About 94% of California dairy farmers produce more than 5 million pounds annually, according to data from the California Department of Food and Agriculture.

That number is close to 80% in Idaho, 60% in Washington and 72% in Oregon, according to state dairy organizations.

“The last four years have been really rough for dairy farmers across the country,” Tami Kerr, executive director of Oregon Dairy Farmers Association, said.

Oregon producers will definitely be looking at new tools available to see if they make sense for them, and they are aware that DMC offers a positive return for 2019, she said.

“They’re very astute when it comes to their finances,” she said.

DMC seems to fix some of the problems that existed in MPP, making it a better and more attractive product for farmers, Scott Dilley, communications director for Washington State Dairy Federation, said.

“I’m sure our producers will take a close look at DMC to see if it will work for their operations. We are hopeful that DMC will provide the type and amount of coverage that our dairy farmers would like and need,” he said.

Western United Dairymen isn’t hearing a lot of interest from producers in California, but sign-up is just starting, Annie AcMoody, WUD director of economic analysis, said.

Rick Naerebout, CEO of Idaho Dairymen’s Association, said he suspects there is interest in DMC among IDA members but Idaho producers typically rely pretty heavily on hedging programs for risk management.

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