October 2022 DMC at a glance
Dairy Margin Coverage (DMC) program margin factors compared to previous month:
- Alfalfa hay: $348 per ton, up $6 from September 2022
- Corn: $6.50 per bushel, down 59 cents
- Soybean meal: $468.68 per ton, down $5.26
- Total feed costs: $15.19 per cwt, down 59 cents
- Milk price: $25.90 per cwt, up $1.50
- Margin above feed cost: $10.71 per cwt, up $2.09
Source: USDA Farm Service Agency, Nov. 30, 2022
The USDA released its latest Ag Prices report on Nov. 30, including factors used to calculate October DMC margins and potential indemnity payments.
Milk prices mostly higher
The October 2022 announced U.S. average milk price rose $1.50 from September to $25.90 per hundredweight (cwt). The average milk price was $6.30 higher than October 2021, and the year-to-date average is $25.64 per cwt, the highest January-October average on record.
October milk prices were higher than the month before in all but three of 24 major dairy states: Florida (-70 cents), Georgia (-60 cents) and Virginia (-10 cents). Those states have the highest Class I utilization and were most adversely impacted by the “average-of” Class I pricing formula.
Largest month-to-month price increases were in the Upper Midwest, with prices up $2.30 in Iowa and Wisconsin, $2.50 in Minnesota and $2.70 in South Dakota.
Compared to a year earlier, October 2022’s U.S. average milk price was up $7 per cwt or more in six states, led by Georgia (+$8), Virginia (+$7.80), Washington (+$7.50) and California (+$7.30).
Feed costs dip
In addition to the higher average milk price, the DMC margin also boosted by overall average feed costs, with lower corn and soybean meal prices offsetting another increase in the dairy-quality alfalfa hay price.
- At $6.50 per bushel, the average price for corn was 59 cents lower than the September average and the lowest since February. It was $1.48 per bushel higher than the average price in October 2021.
- The October average price for dairy-quality alfalfa hay was $348 per ton, up $6 from September and another record high.
- The average cost of soybean meal (SBM) fell to $468.68 per ton, a four-month low.
The feed cost for each month is calculated by summing three numbers: (1) the corn price per bushel times 1.0728; plus (2) the soybean meal price per ton times 0.00735, plus (3) the alfalfa hay price per ton times 0.0137.
October feedstuff prices yielded an average DMC total feed cost of $15.19 per cwt of milk sold, down 59 cents from September and the lowest since June.
Margin and payments
With a higher average all-milk price and lower feed costs, the October DMC margin over feed costs was $10.71 per cwt, up $2.09 from September and well above the top Tier I coverage level of $9.50 per cwt. There will be no indemnity payments at any coverage level.
DMC program indemnity payments on August and September 2022 milk marketings were estimated at about $84.6 million. The August DMC margin was $8.08 per cwt, triggering indemnity payments at $9.50, $9 and $8.50 per cwt coverage levels. The September DMC margin was $8.62 per cwt, triggering indemnity payments for Tier I producers covered at the $9 and $9.50 per cwt levels.
The November DMC margin will be announced Dec. 30. Last updated on Nov. 23, the DMC decision tool projected the November 2022 margin at $10.18 per cwt. The December margin was projected at $9.50 per cwt.
As of Nov. 23, the DMC decision tool projects margins to hover in a range just under $9 per cwt through the first seven months of 2023, averaging $9.27 per cwt for the year.
2023 enrollment reminder
Dairy producers have about one week to enroll and make 2023 DMC coverage elections. The deadline is Dec. 9, at USDA Farm Service Agency offices. Producers will need to certify to commercially marketing milk, pay the $100 administrative fee and sign the DMC contract, selecting the annual milk volume and coverage level for the year.
Operating costs higher
Outside of feed – and not factored into DMC margins – other costs were higher. The October index of prices paid for commodities and services, interest, taxes and farm wages was up 0.3% from September 2022 and 12% more than October 2021. Machinery costs rose 3.1% from September and were up 16% from October 2021. The October fuel cost index was up 1.6% from September and 21% more than October 2021. Fertilizer prices rose 2.2% from September and were 25% higher than October 2021.
Market cow prices drop
Impacting the income side of the ledger, heavier volumes of beef cull cows headed to market, pressuring prices lower. U.S. average prices received for cull cows (beef and dairy, combined) in October averaged $84.10 per cwt, down $7.10 from September and the lowest monthly average since February.
Marketing of U.S. dairy cull cows through U.S. slaughter plants declined slightly in October and remained behind last year’s pace. At 252,800 head, the October total was down 7,700 from September and about 3,400 less than October 2021.