The USDA National Agricultural Statistics Service (NASS) released its latest Ag Prices report on Sept. 29, including factors used to calculate August 2023 Dairy Margin Coverage (DMC) margins and indemnity payments. Compared to a month earlier, U.S. average feed costs were lower and milk prices were up, pushing the milk income margin up almost $3 per hundredweight (cwt) from July’s historic low.
August 2023 DMC at a glance
DMC program margin factors compared to previous month:
- Alfalfa hay: $282 per ton, down $6 from July 2023
- Corn: $5.73 per bushel, down 49 cents
- Soybean meal: $438.80 per ton, down $4.35
- Total feed costs: $13.24 per cwt, down 64 cents
- Milk price: $19.70 per cwt, up $2.30
- Margin above feed cost: $6.46 per cwt, up $2.94
Source: USDA Farm Service Agency, National Ag Statistics Service and Ag Marketing Service, Sept. 29, 2023
With a possible government shutdown impacting USDA Farm Service Agency (FSA) staff, the USDA has authorized an expedited payment process and is allowing staff to work overtime to make sure producers receive DMC program indemnity payments.
In a notice to state and county FSA office on Sept. 28, FSA Administrator Zach Ducheneaux directed staff to focus on payment distribution through DMC and other USDA programs, including the Organic Dairy Marketing Assistance Program (ODMAP), Milk Loss Program (MLP), Emergency Relief Program (ERP) and Emergency Livestock Relief Program (ELRP).
FSA staff in county and state offices are authorized to work overtime on Friday evening, Sept. 29, until 1 p.m. (Central time) on Saturday, Sept. 30, to prepare payments requiring certification. (Read: October dairy risk management calendar is itself at risk)
Milk prices rise
The August 2023 announced U.S. average milk price rose $2.30 from July to $19.70 per cwt, the highest since April. It was still down $4.40 per cwt from August 2022.
August milk prices were higher than the month before in all 24 major dairy states, with smallest increases in states within high Class I milk utilization Federal Milk Marketing Orders (FMMOs). Month-to-month increases were largest in Iowa (+$4.40), South Dakota (+$4) and Minnesota and Wisconsin (both +$3.70), where higher component values added price strength.
High prices for the month were still in high Class I fluid milk utilization states of Florida ($22.80 per cwt), Georgia ($22.20) and Virginia ($22.30). Lowest average prices were in New Mexico ($17.60) and Kansas ($18).
Compared to a year earlier, August 2023’s U.S. average milk price was down $4.40 per cwt, led by declines of $7.50 or more in Georgia and Florida.
Feed costs lower
National average costs for major feedstuffs were all lower:
- At $5.73 per bushel, the average price for corn was 49 cents lower than a month earlier and the lowest since January 2022.
- The average cost of soybean meal (SBM) dipped to $438.80 per ton, down $4.35 from July.
- The August average price for dairy-quality alfalfa hay was $282 per ton, down $62 from the previous month and the lowest since June 2022.
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.
August feedstuff prices yielded an average DMC total feed cost of $13.24 per cwt of milk sold, down 64 cents from July.
Indemnity payments fall
At $6.46 per cwt, the August DMC margin triggers Tier I indemnity payments at all coverage levels at $6.50 per cwt and above. The top payment is $3.04 per cwt at the maximum $9.50 coverage level.
Other indemnity payments are:
- $9 coverage level – $2.54
- $8.50 – $2.04
- $8 – $1.54
- $7.50 – $1.04
- $7 – $0.54
- $6.50 – $0.04
Similar Tier II indemnity payments are triggered at $4 to $8 coverage levels.
All 2023 DMC indemnity payments are subject to a 5.7% sequestration deduction.
According to National All Jersey’s Erick Metzger, milk protected at the $9.50 per cwt level will realize indemnity payments of almost $2,267 for each 1 million pounds enrolled. Year-to-date payments total just under $23,509 per 1 million pounds covered at the maximum level.
Past payments
Although smaller, the indemnity payments will add to mounting 2023 totals. DMC program indemnity payments on January-July DMC payments totaled more than $1.1 billion. (Read: Year-to-date 2023 DMC payments have topped $1.1 billion)
Based on latest enrollment data as of Sept. 5, 17,002 dairy operations are enrolled in the 2023 DMC program, representing about 73.6% of operations with established production history. January-July DMC payments averaged $66,355 per dairy operation enrolled in 2023.
Looking ahead: Bouyancy
The milk income margin should continue to improve in September DMC calculations (to be announced at the end of October). As of the close of futures trading on the Chicago Mercantile Exchange on Sept. 28, the DMC decision tool projected a September margin of $8.12 per cwt.
Slowing milk production, combined with robust demand, is supporting a buoyant outlook for milk prices in commodity markets, according to National Milk Producers Federation’s Peter Vitaliano. Summarizing dairy markets in the September 2023 Dairy Management Inc./National Milk Producers Federation Dairy Market Report, he said available forecasts continue to indicate DMC margins will increase rapidly and may reach $10 per cwt by the end of the year.
For more information on commercial use, dairy trade, milk production, product inventories, prices and margins, view the September Dairy Market Report.
Other operating costs mixed
Outside of feed – and not factored into DMC margins – other costs were mixed. The August index of prices paid for commodities and services, interest, taxes and farm wages was up 0.1% from July but down 0.6% from August 2022.
Machinery costs were up 0.1% from July and up 2.6% from August a year ago. The August fuel cost index was up 10% from the previous month but 14% less than a year earlier. Fertilizer prices dipped 2.9% from July and 29% from August 2022.
Market cow prices hit new high
Another positive in the USDA Ag Prices report: U.S. average prices received for cull cows (beef and dairy, combined) in August averaged $115 per cwt, up $4 from June and surpassing the previous high of $114 per cwt in March and May 2015.
