October milk prices moved to a 12-month high, helping boost the Dairy Margin Coverage (DMC) program income margin to $8.77 per hundredweight (cwt), according to preliminary calculations by
Natzke dave
Editor / Progressive Dairy
Progressive Dairy.

The USDA released its latest Ag Prices report on Nov. 30, including factors used to calculate October 2021 DMC margins and payments. In addition to higher milk prices, lower soybean meal and corn prices cut total DMC feed costs, creating the largest margin since December 2020.

Based on monthly average prices, the October DMC margin is $3.52 higher than August’s historic low. It marked the first month in which the DMC milk income margin was above $7.50 per cwt this year.

Dairy producers insured at the top $9.50 per cwt tier I level will see an indemnity payment of about 73 cents per cwt (Table 1). That translates to an average of about $575 per 1 million pounds of milk. Tier I producers insured at the $9 per cwt level will see a payment of 23 cents per cwt. There will be no indemnity payments on tier II coverage.

113021 natzke dairy margin tbl1

The October payments are on one-twelfth of a dairy operation’s covered annual production history, and DMC payments are subject to a 5.7% sequestration deduction in 2021.


Average milk price rises

The October 2021 announced U.S. average milk price rose $1.30 from September to $19.70 per cwt.

October milk prices were higher than the month before in all 24 major dairy states (Table 2), with largest increases in South Dakota, Minnesota, Idaho and Iowa.

113021 natzke dairy margin tbl2

Producers in nine states saw average prices above $20 per cwt, with highs of $22 per cwt in Florida and Oregon. New Mexico was the only state where the average was under $18 per cwt.

Compared to a year earlier, the U.S. average milk price was down 30 cents per cwt. The states with the biggest downturns in prices from a year ago were those in which 2020 USDA food box cheese purchases drove Class III milk prices higher.

Corn, soybean meal prices lower

In addition to the higher milk prices, lower corn and soybean meal prices offset another jump in alfalfa hay prices, reducing total feed costs per cwt of milk sold in October.

  • The average price for a blend of premium and all alfalfa hay used in DMC calculations was $230 per ton, up another $3.50 per ton from September and the highest ever under DMC or its predecessor, the Margin Protection Program for Dairy (MPP-Dairy). The higher average hay price came even though a change in the DMC alfalfa hay price factor, initially announced by the USDA on Aug. 19, has not yet been implemented.

  • The average price for corn dropped 45 cents from September to $5.02 per bushel, the lowest since March.

  • The cost of soybean meal fell for a fifth consecutive month, down more than $18 from September to $325.43 per ton. It’s the lowest since September 2020.

Those feedstuff prices yielded an average DMC total feed cost of $10.93 per cwt of milk sold (Table 3), down 54 cents from September and the lowest since February.

113021 natzke dairy margin tbl3

Year-to-date DMC payments

Through Nov. 1, DMC indemnity payments have totaled more than $1.08 billion, primarily representing payments for January-August milk marketings. Of 25,266 dairy operations with established DMC milk production history this year, 6,222 had not enrolled for the 2021 DMC program. Year-to-date payments across all participating dairies averaged $56,726.

No additional details available

At Progressive Dairy’s deadline, there were still no details related to multiple aspects of the DMC program that had been announced three months earlier:

  • We don’t know when changes to dairy-quality hay prices used in DMC feed cost calculations will be implemented, nor when any adjusted indemnity payments, retroactive to January 2020, will be distributed.

  • The USDA has not provided details regarding the $580 million supplemental DMC program for small and medium dairy herds.

  • There’s been no announcement regarding an enrollment period for the 2022 DMC program.  end mark