By Matt Reese
With the growing potential for milk prices to fall in 2021 and a slow sign-up so far, those in the know are strongly encouraging dairy farms to sign up Dairy Margin Coverage (DMC) for the 2021 program year. Dairy producers have until Friday, Dec. 11, 2020, to enroll in DMC through their local Farm Service Agency (FSA) county offices.
“The local staff are going to be the experts helping you walk through the sign-up process,” said Richard Fordyce, Farm Service Agency administrator. “As of Monday (Nov. 30) we had 7,840 enrolled and that is way off the pace of 2019 and 2020.”
Fordyce pointed to a successful track record of the DMC as a risk management tool.
“DMC has proved to be a worthwhile risk management tool, providing dairy producers with much- needed financial support when markets are most volatile,” he said.
This was also emphasized by Marin Bozic, assistant professor in Dairy Foods Marketing Economics in the Department of Applied Economics at the University of Minnesota.
“Ad hoc payments like CFAP are truly programs that are going to be deployed when there is systemic hurt that covers all of the ag sectors. If we get to the new year with better support for COVD-19 and maybe vaccines, betting on ad hoc to help to get through the year may not be the best medicine to hope for,” Bozic said. “We really want to emphasize how effective this program would have been over the previous years had it been in effect the way it is now. Changes were introduced in 2019 for folks who did not get what they wanted from the Margin Protection Program. This tool really can help producers. The average payment over the last 10 or 11 years would have been $1.39 per hundredweight of eligible milk, which ends up being a net indemnity of $1.24, which is quite substantial.”
A ramp up in COVID-19 cases could mean diminishing demand for dairy products and milk profitability challenges in 2021.
“Any dairy producer — whether they have 50 cow or 5,000 cows — can sign up for the Dairy Margin Protection program. There are very few programs that are as effective in providing dairy protection. The effectiveness of the program cannot be understated,” Bozic said. “This should not be an afterthought. It should be the cornerstone of their risk management strategy for 2021.”
DMC offers reasonably priced protection to dairy producers when the difference between the all-milk price and the average feed cost (the margin) falls below a certain dollar amount selected by the producer. The program can be used in conjunction with other available risk management tools, such as the Livestock Gross Margin Insurance Plan for Dairy Cattle (LGM) or Dairy Revenue Protection (Dairy RP) both of which are offered through the Risk Management agency (RMA). Participation in DMC does not prevent producers from also participating in other available USDA safety-net, disaster assistance, conservation or credit programs.
In 2019 during the 2020 DMC enrollment period, the margin projections forecasted no indemnity payments well into 2020. Then COVID-19 hit, and market volatility ensued triggering multiple DMC payments. Unfortunately, because producers relied on the 2020 pre-pandemic margin projections, approximately 10,000 fewer dairy operations enrolled in DMC for 2020 than had enrolled the previous year. DMC triggered seven payments in 2019 and so far, four payments have triggered for the 2020 program year. Ohio producers have received 11 DMC payments totaling more than $19,156,072 for 2019 and 2020 program years combined. To date, Ohio has 300 dairy operations currently enrolled in DMC for the 2021 program year.
DMC offers flexible coverage level options, starting at the $4.00 catastrophic level of coverage with no premium fee. From there, producers can choose to buy-up coverage where the premium is based on margin triggers between $4.50 and $9.50 on 5% to 95% of established production history. At about $0.15 per hundredweight, DMC is one of the more cost-effective dairy risk management options available.
Dairy producers are strongly encouraged to use the recently updated dairy decision tool to determine the coverage level that meets your operation’s specific needs. The improved online tool demonstrates the historical performance of DMC and assists producers with calculating total premium costs and administrative fees associated with participation.
Dairy farmers who locked in five years of coverage during the first signup in 2019 still need to annually certify that the operation is commercially marketing milk, pay the administrative fee, unless exempt, and sign the required forms for 2021 coverage by the Dec. 11 deadline.
For more information, visit the DMC webpage, or contact a local USDA Service Center.