The August Dairy Margin Coverage (DMC) margin was announced as $8.08 per hundredweight (cwt). This represents the third month in a row for declining DMC margins and the first month this year that the margin has dropped below the maximum $9.50 DMC margin coverage.
The margin decline was the result of record-high DMC feed cost and another milk price decline (Table 1). The U.S. all-milk price for August was announced as $24.30 per cwt, $1.40 less than July and the lowest milk price since January 2022’s price of $24.20 per cwt.
The DMC total feed cost increased another 44 cents compared to July’s previous record high, to $16.22 per cwt. The increase was the result of increased U.S. average alfalfa hay and soybean meal (SBM) prices while the corn price was relatively unchanged at $7.24 per bushel, just 1 cent less than July. The price of dairy-quality alfalfa hay increased $10 in August to $343 per ton. The DMC hay price has set a record high each month since December 2021.The SBM price jumped $43.03 compared to July to $510.90 per ton. This is the first time in DMC program history that SBM surpassed $500 per ton.
DMC triggers indemnity payment
For those covered at the $9.50 level, the August DMC margin results in an indemnity payment of $1.42 per cwt on one-twelfth of annual milk production history. If enrolled in Supplemental DMC, the additional indemnity will be calculated as one-twelfth of 75% of the difference between 2019 actual production and current production history. DMC indemnity payments for 2022 are subject to 5.7% sequestration deduction. Those insured at $9 and $8.50 levels will see payments of 92 cents and 42 cents, respectively, less the sequestration deduction.
The August payment, after the 5.7% sequestration fee, is equal to $1,115.88 per 1 million pounds of milk production history up to the 5-million-pound, Tier 1 cap. This is equivalent to a benefit of 11 cents per cwt of the 15 cents per cwt premium cost.
DMC premiums for 2022 were due no later than Sept. 1, 2022. According to the USDA, automatic payment of indemnities was scheduled to begin on Oct. 4. However, automated payments for individual operations will be withheld until all premiums and administration fees are paid in full.
DMC projections
Using factors for the DMC Decision Tool as of Sept. 28, 2022, DMC margins are projected below the maximum $9.50 margin coverage for three out of the last four months of 2022 (Table 2) and range from a low of $7.89 in September to a high of $9.78 in October. The average DMC margin for the remainder of the year is projected to average $9.08. If the margins in Table 2 become reality, it will represent a net benefit, after premiums and fees, of 11 cents per cwt for the 2022 program year.
