Dairy farmers who signed up for USDA’s Dairy Margin Coverage program probably weren’t anticipating a global pandemic that would devastate milk markets.
In fact, 2020 was forecast as a recovery year when DMC enrollment for 2020 ended in December — before COVID-19 crashed onto the scene.
Now it appears DMC indemnity payments are a sure thing for at least part of 2020.
USDA’s Farm Service Agency announced on May 20 the March margin between the all-milk price and feed price was $9.15 per hundredweight of milk — meaning eligible producers will receive $0.35 per hundredweight for the amount of milk enrolled at the $9.50 margin level.
The agency estimated total payout for March at about $8.4 million.
The 13,273 operations participating in DMC this year enrolled more than 120 billion pounds, about 56% of DMC established production history and about 55% of U.S. milk production in 2019.
Looking ahead, FSA’s margin estimates on May 21 were $5.90 for April and $4.95 for May with a 100% probability and $8.47 for June with an 83% probability.
The program allows farmers to enroll up to 95% of their milk production at margins from $4 to $9.50 on their first 5 million pounds of annual production. Additional production can be covered at margins from $4 to $8 at increased premiums.
DMC enrollment is down more than 10,000 operations from 2019, when about 82% of eligible operations signed up.
FSA has not released enrollment data on margin levels but estimates a farmer who enrolled 5 million pounds for a $9.50 margin on 95% of production will receive about $76,000 in indemnity payments in 2020.
That’s a good return on a premium of $7,125 and an even better return on a discounted $5,343.75 premium if producers locked in coverage for five years.
The program was designed for the majority of U.S. producers with an average annual production of 5 million pounds. FSA estimates that production represents dairies with 200 to 250 cows.
While dairies in the West can be much larger, 32,009 operations — about 81% — of the 39,303 in business at the end of 2017 had fewer than 200 cows, according to the Census of Agriculture.