The new year is taking shape with risk management policies offering enrollment for 2025 as the 2018 Farm Bill was granted a one-year extension, as well as the Federal Milk Marketing Order (FMMO) referendum passing with the new rule to take effect June 1. Producers also saw Class III and Class IV prices decline following the final days of coverage availability for the Dairy Revenue Protection (Dairy-RP) program in the final quarter of 2024, leading to significant indemnity payments and a reminder that risk protection is beneficial as markets do change.
Here's Progressive Dairy’s look at important dates, reports and advice affecting risk management decisions, as well as other information impacting the milk check in February.
Dairy Margin Coverage (DMC) program
Enrollment for the DMC program for the 2025 coverage year begins Wednesday, Jan. 29 and will remain open through Monday, March 31.
Since 2019, the DMC program has served as a voluntary risk management program that offers protection when the difference between the milk price and feed cost falls below a selected margin. In some years, payments are rarely triggered, as has been the case for 2024. But in other years, the program has been critical to farm businesses when milk prices tank and feed costs soar as was seen in 2023.
Dairy producers can submit applications to their local USDA Farm Service Agency (FSA) office to secure coverage. (Read: 2025 Dairy Margin Coverage enrollment begins Jan. 29)
The December 2024 DMC margin and indemnity payment will be announced Friday, Jan. 31, with January’s margin calculated Friday, Feb. 28.
The realized DMC margin for November was $14.29 per hundredweight (cwt). At that margin, more than $4.50 above the $9.50 per cwt top coverage level in Tier 1, November became yet another month of no indemnity payments. The margin was driven by a slight fall in milk prices and mixed feed costs throughout the month. (Read: November DMC margin settles at $14.29)
As of Jan. 24, the December 2024 margin forecasts indicate a smaller margin, but well above the highest coverage level that would trigger an indemnity payment. Forecasts predict the all-milk price falling $1.08 and the feed cost dropping 52 cents for a DMC margin of $13.73 per cwt. Forecasts for January 2025 indicate similar results with both milk price and feed costs rebounding a bit.
Dairy Revenue Protection (Dairy-RP)
Dairy producers managing risk through Dairy-RP are eligible to cover revenue quarterly, up to five nearby quarters. In February, Dairy-RP coverage is available for the second quarter of 2025 (April through June) through the third quarter of 2026. Coverage for the second quarter of 2025 closes March 15.
The market changes daily and Dairy-RP endorsements must be purchased between the Chicago Mercantile Exchange (CME) market closing and the next CME opening. Dairy-RP is also not available on days when applicable futures contracts move limit-up or limit-down, or on days when CME trading in closed due to holidays. In February, that includes Presidents Day (see Calendar).
Also, Dairy-RP coverage cannot be purchased on days when major USDA dairy reports that could impact markets are released. This includes Milk Production, Cold Storage and Dairy Products reports.
The final quarter of 2024 averaged 29 cents per cwt, with the majority triggered by coverage secured near the final days of the enrollment period as Class III and Class IV prices declined, according to HighGround Dairy’s Alex Gambonini. After factoring in producer premiums, which averaged 37 cents per cwt, the estimated net return to producers was negative 8 cents per cwt.
“At the 95 percent coverage level with the class pricing option, Class III coverage generated indemnities exceeding 1.20 dollar per cwt during the final week of availability, Sept. 9-13, 2024, when ignoring yield adjustment factors,” she says.
In quarter four of 2024, over 17.9 billion pounds of milk were covered under Dairy-RP, representing 32% of the U.S. milk supply.
Livestock Gross Margin for Dairy (LGM-Dairy)
LGM-Dairy is another subsidized margin insurance program administered by the USDA’s Risk Management Agency (RMA).
The insurance program provides a protection when feed costs rise or milk prices drop, and can be tailored to any size farm. The program uses futures prices for corn, soybean meal and milk to determine the expected gross margin and the actual gross margin. LGM-Dairy is similar to buying both a call option to limit higher feed costs and a put option to set a floor on milk prices.
Coverage can be purchased on expected milk marketing over a rolling 11-month insurance period. So the coverage period during February 2025 includes the months of March 2025 through January 2026.
Sales periods for the LGM-Dairy program are open on a weekly basis. Unlike Dairy-RP, LGM-Dairy is available even if a sales period falls on the day of a USDA report. Premium payments are due at the end of the insurance period.
Other factors to consider
The USDA announced Jan. 17 that the FMMO referendum passed in all 11 FMMOs, which amends pricing provisions in each of the orders. (Read: FMMO modernization: Referendum passes in all 11 FMMOs)
With these changes, class pricing and component pricing will be impacted, says Gambonini.
Beginning June 1, the new price formula will be used and is expected to lower Class III and Class IV futures prices. Then on Dec. 1, updated skim milk composition factors will take effect, leading to an increase.
“The key takeaway is that the higher skim component factors, while butter remains unchanged, will shift class pricing to cover a higher ratio of protein to fat,” Gambonini says. “This means you will be covering more protein under class pricing than before.”
Component prices is not as black and white. According to Gambonini’s industry sources, covered component prices will be based on the make allowances in place at the time coverage was purchased. Meaning, coverage under component pricing will be quoted using the new formula beginning June 1, while coverage already purchased will remain under the old formula. Table 1 provides a comparison of the old and new formula for Class III component coverage.
- Announced Jan. 2, December 2024 FMMO Class II, III and IV milk class prices were down from November, as was the previously announced Class I base milk price for the month. (Read: All December 2024 FMMO milk class prices lower)
- FMMO regional uniform milk prices were lower in December, and in many regions, the lowest since May 2024. (Read: December 2024 FMMO uniform milk prices decline)
- The USDA’s monthly World Ag Supply and Demand Estimates (WASDE) report lowered the milk production forecast for 2024 and also lowered the 2025 production forecast due to slower growth in output per cow. (Read: December WASDE report forecasts lower milk production)
Check the Progressive Dairy website for updates affecting milk prices as they become available.
