Dairy margin coverage

USDA’s calculated margin above feed costs under the dairy margin program is $7.14 per hundredweight for January 2021.

Dairy farmers who signed up for USDA’s Dairy Margin Coverage program can expect a payout for January if they protected a margin between milk prices and feed costs of $7.50 per hundredweight of milk or above.

USDA’s calculated margin above feed costs is $7.14 per hundredweight for January.

Of the 162.2 billion pounds of production history enrolled nationally in DMC for 2021, producers covered 48.4 billion pounds at some margin level. Of that, 95% — 46.2 billion pounds — was protected at a $9.50 margin per hundredweight, USDA’s Farm Service Agency told Capital Press.

Farm Service Agency hasn’t yet posted the January payout, which would be for 1/12 of producers’ annual covered production. At the $9.50 margin level, that accounts for about 3.8 billion pounds, or 38 million hundredweight of milk.

A payout of $2.36 per hundredweight at the $9.50 margin equates to almost $89 million.

A producer who covered 5 million pounds annually at the maximum 95% of production would have coverage for 4.75 million pounds or 47,500 hundredweight of milk. One-twelfth of that would be 3,958 hundredweight. Coverage at the $9.50 level would result in a payout of $9,342 for January.

The annual premium for that coverage, including the $100 administrative fee, is $7,225. So in January alone, that producer’s net return on the program is $2,117.

But that’s only on the first 5 million pounds of annual production, representing a herd of 200 to 250 cows.

DMC contracts for 2021 totaled 18,679. Of that, 17,899 — 95% of contracts — are at the $9.50 margin coverage level.

Total enrollment (not coverage) represents about 74% of dairy operations with production history for USDA programs and nearly 80% of established production history.

The large difference in volumes enrolled and volumes covered is most likely tied to the higher cost of premiums for annual milk production above 5 million pounds — the average U.S. production for which the program was designed.

The premium rate for $9.50 coverage on the first 5 million pounds is 15 cents per hundredweight of milk. Coverage is not available for an $8.50, $9 or $9.50 margin for production above 5 million pounds. But coverage of an $8 margin on production above 5 million pounds is $1.81 per hundredweight, compared with 10 cents per hundredweight for 5 million pounds or less.

Capital Press has filed a Freedom of Information Act request with USDA for a breakdown of coverage levels nationally and for certain western states.

Of dairies with established USDA production history in Idaho, 72% are enrolled in DMC, representing 67% of production. How much production was covered and at what margin level isn’t immediately available.

Enrollment in Washington is 79% of dairies, representing 83% of production. Enrollment in Oregon is 75% of dairies, representing 60% of production. Enrollment in California is 72% of dairies, representing 79% of production.

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