Slightly lower overall feed costs were more than offset by a decline in milk prices, translating into June 2021 Dairy Margin Coverage (DMC) program indemnity payments that will be the second largest of the year.
Natzke dave
Editor / Progressive Dairy

The USDA released its latest Agricultural Prices report on July 30, including factors used to calculate monthly DMC margins and payments. Based on preliminary estimates by Progressive Dairy, the June DMC milk income over feed cost margin is $6.24 per hundredweight (cwt), 65 cents less than May, the second lowest of the year and the fifth straight month in which the margin was below $7 per cwt.

June’s income margin over feed costs is just 2 cents above February 2021. The margin has been lower in only two other periods in the seven-year history of the DMC program or its predecessor, the Margin Protection Program for Dairy (MPP-Dairy). That occurred during the peak of the COVID-19 milk market disruptions in April-May 2020 and in May-June 2016.

The June margin again triggers indemnity payments on Tier I and Tier II milk insured at all levels above $6.50 per cwt. Those with Tier I (5 million pounds or less of covered production history) who are insured at the top level of $9.50 per cwt will see a payment of $3.26 per cwt, the largest since February cwt (Table 1). The 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.

DMC payments

A preliminary estimate by Zach Myers, risk education manager with Pennsylvania’s Center for Dairy Excellence, puts the Tier I/$9.50 per cwt payment at $2,433.73 per million pounds of milk production history under DMC.


For Tier I producers insured at the $9.50 per cwt margin level, monthly indemnity payments through the first six months of 2021 have averaged about $2.85 per cwt.

Average milk price dips to $18.40 per cwt

The June 2021 announced U.S. average milk price fell 80 cents from May to $18.40 per cwt. June milk prices were lower than the month before in 18 of the 24 major dairy states (Table 2). The biggest drops were in Iowa, Minnesota and South Dakota, each down $2 or more.

milk prices received

New Mexico had the lowest average milk price in June, $2.60 under the U.S. average. Florida and Georgia were price leaders at $22.70 and $21.10 per cwt, respectively.

Compared to a year earlier, the U.S. average milk price was up just 20 cents per cwt.

Not included in the all-milk price calculations is the impact of producer price differentials (PPDs) and other marketing deductions from producer milk checks. For the most part, PPDs were positive in June, although zone differentials and deductions by individual handlers varied. Read: Back in the pool: Positive PPDs return with Class III milk (for now).

USDA’s mailbox price announcement – which includes many deductions – generally lags the all-milk price announcement by a couple of months. U.S.-average “mailbox prices” have been about $1.24 per cwt less than the all-milk price through the first four months of 2021. Read: Weekly Digest: Mailbox and all-milk prices maintain spread.

Corn, hay prices rise

Although overall feed costs declined slightly in June, they remained historically high.

  • The average price for a blend of premium and all alfalfa hay used in DMC calculations was $214.50 per ton, up $4.50 per ton from May and the highest since June 2014.

  • The average price for corn increased another 9 cents to $6 per bushel, the highest ever under DMC or its predecessor, MPP-Dairy.

  • Dairy farmers did see some relief on the U.S. average cost of soybean meal in June, which declined $42.80 to $378.18 per ton, the lowest average since October 2020.

Those feedstuff prices yielded an average DMC total feed cost of $12.16 per cwt of milk sold (Table 3), down 15 cents from May but still the second highest in the seven-year history of DMC or MPP-Dairy.

DMC margin calculations

Indemnity payment outlook

Without a major change in milk or feed markets, monthly DMC indemnity payments are expected to continue.

The July 2021 DMC margin and any indemnity payments will be announced on Aug. 31. The July Federal Milk Marketing Order (FMMO) Class I base price is down 87 cents per cwt from June at $17.42 per cwt. July Class III and Class IV milk prices won’t be announced until Aug. 4, but current Chicago Mercantile Exchange (CME) futures prices indicate both will be lower than June.

Longer term, Peter Vitaliano, chief economist for the National Milk Producers Federation (NMPF), said the current futures-based price outlook indicates DMC margins could stay below $9.50 per cwt for all of 2021.

Based on futures prices as of July 26, the DMC Decision Tool indicated monthly average feed costs used in indemnity payment calculations are expected to be above $12 per cwt in July and August then remain in a range of $11.70-$11.22 per cwt through the end of calendar 2021.

Year-to-date DMC payments adjusted

The USDA’s Farm Service Agency (FSA) reduced its estimate of year-to-date DMC indemnity payments. As of July 26, indemnity payments to eligible producers totaled $543.5 million, down from $550.7 million reported two weeks earlier. The total represents indemnity payments on January-May milk marketings. State-by-state enrollment and payment information is available here.

DMC production history adjustments

There still has been no update on when or how the USDA will distribute supplemental DMC payments for small- and medium-sized producers. On June 15, U.S. Ag Secretary Tom Vilsack said additional USDA pandemic financial assistance would be available within 60 days.  end mark

Dave Natzke