The USDA National Agricultural Statistics Service (NASS) released its latest Ag Prices report on March 31, including factors used to calculate February 2023 Dairy Margin Coverage (DMC) margins and indemnity payments. A declining U.S. average milk price and higher average costs for corn and soybean meal drove milk income margins to their lowest level since August 2021.
February 2023 DMC at a glance
Dairy Margin Coverage (DMC) program margin factors compared to previous month:
- Alfalfa hay: $324 per ton, down $4 from January 2023
- Corn: $6.80 per bushel, up 16 cents
- Soybean meal: $500.53 per ton, up $18.13
- Total feed costs: $15.41 per cwt, up 25 cents
- Milk price: $21.60 per cwt, down $1.50
- Margin above feed cost: $6.19 per cwt, down $1.75
Source: USDA Farm Service Agency, National Ag Statistics Service and Ag Marketing Service, March 31, 2023
Milk prices lower
The February 2023 announced U.S. average milk price fell $1.50 from January to $21.60 per cwt, the lowest since December 2021.
February milk prices were lower than the month before in all 24 major dairy states, led by a $2.40 decline in South Dakota (Table 1). High price for the month was in Florida at $26 per cwt; average prices were below $20 per cwt in Iowa and New Mexico.
Compared to a year earlier, February 2023’s U.S. average milk price was down $3.10 per cwt, led by a $4.50 drop in Iowa.
Feed costs mostly higher
In addition to the lower average milk price, the DMC margin weakened due to higher overall average feed costs (Table 2).
- At $6.80 per bushel, the average price for corn was 16 cents higher than a month earlier and the highest since last September.
- The average cost of soybean meal (SBM) rose to $500.53 per ton, up $18.13 from January and the highest since last August.
- The February average price for dairy-quality alfalfa hay was $324 per ton, down $4 from January.
The DMC 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.
February feedstuff prices yielded an average DMC total feed cost of $15.41 per cwt of milk sold, up 25 cents from January and a five-month high.
Indemnity payments
At $6.19 per cwt, the February DMC margin triggers Tier I indemnity payments at all coverage levels from $6.50 to $9.50 per cwt, with a top of $3.31 per cwt at the maximum $9.50 coverage level (Table 3); and Tier II indemnity payments at $6.50 to $8 coverage levels.
Based on preliminary calculations from Erick Metzger with National All-Jersey, February milk covered at the Tier I, $9.50 level will receive an indemnity payment of $2,622.59 for every million pounds insured.
All 2023 DMC indemnity payments are subject to a 5.7% sequestration deduction.
Looking ahead
The February 2023 indemnity payments continue what looks to be a lengthy trend. Based on the DMC decision tool as of March 30, the monthly DMC margin is projected to be below $7 per cwt in in March, May and June, and below $9 for all months until October, averaging $7.91 per cwt for the year.
As of March 6, 16,739 dairy operations had enrolled in the 2023 DMC program, representing about 73% of operations with established production history. Milk volume covered under the program totaled 155.8 billion pounds, almost 79% of production history. January indemnity payments were estimated at at about $57 million.
The enrollment figures do not include enrollment in the Supplemental DMC program.
Other operating costs mixed
Outside of feed – and not factored into DMC margins – other costs were mixed. The February index of prices paid for commodities and services, interest, taxes and farm wages was unchanged from January but up 5.2% from February 2022.
Machinery costs dipped 1% from January but were up 6.6% from February a year ago. The February fuel cost index was down 2.3% from the previous month and year, with lower diesel prices offsetting higher gasoline prices. Fertilizer prices dipped 4.7% from January and 6.4% from February 2022.
Market cow prices up
U.S. average prices received for cull cows (beef and dairy, combined) in February averaged $89.50 per cwt, up $7.80 from January and the highest monthly average since last September.
Read also: Dairy risk management calendar: April 2023
