The supply and demand of U.S. dairy products has continued its careful balancing act this spring. With the nation’s herd size growing and milk production on the rise, processors are maxing out their capacities to meet the global demands for U.S. dairy products, namely protein and nonfat dry milk powder alongside export leader cheese. All of this is moving prices in favorable directions, with May Class IV futures closing at $22.29 per hundredweight (cwt) on April 24 and May Class III futures closing at $17.56 per cwt. But markets can quickly change.
Add in the record prices dairy producers are receiving for cull cows and beef-on-dairy animals, and an established risk management plan becomes even more critical.
Here’s Progressive Dairy’s look at important dates, reports and advice affecting risk management decisions, as well as information that will affect dairy producers.
Dairy Margin Coverage
Despite dairy margins strengthening – particularly in Class III and Class IV – which offered an increase in the all-milk price and offset sturdy feed costs, it was not enough for February’s margin to sit above the maximum threshold of the Dairy Margin Coverage (DMC) program. As a result, February’s DMC margin was $8.46 per cwt, with indemnity payments expected for participating farms. (Read: Payments triggered for February DMC margin of $8.46 per cwt)
March’s DMC margin has seemingly improved, with a margin forecast at $9.65 per cwt at the time of this writing. With milk futures supported by a strong demand, particularly on the export front – and Class IV carrying that strength in butter and nonfat dry milk markets – the monthly all-milk price forecast has risen more than $1 from February to $19.71 per cwt. At the same time, feed costs remain relatively steady with a feed cost forecast up to $10.06 per cwt from $9.84 per cwt in February. If the margin is realized, no indemnity payments will be issued. The actual March DMC margin will be announced April 30 following the release of the USDA Agricultural Prices report.
Forecasts for the remainder of 2026 indicate the worst is behind us. Margins are predicted to land in the $10-$12 per cwt range in the coming months, with the year’s average margin forecast at $10.93 per cwt. Be mindful as markets are not guaranteed.
Dairy Revenue Protection (Dairy-RP)
Dairy producers managing risk through Dairy-RP are eligible to cover revenue quarterly, up to five nearby quarters. In May, Dairy-RP coverage is available for the third quarter of 2026 (July through September) through the third quarter of 2027.
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 is closed due to holidays.
Also, typically 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 (see Calendar).
Estimated results for Dairy-RP participation in the first quarter were calculated by HighGround Dairy using the announced class and component prices and milk yields reports from the USDA before official results were announced by the USDA Risk Management Agency (RMA). Roughly 27.5% of the U.S. milk supply was covered under the program. First-quarter indemnities averaged $1.21 per cwt, but with an average premium cost of 28 cents per cwt, the estimated net return to dairy producers was 83 cents per cwt.
The evaluation of the program also revealed that if ignoring yield adjustment factors, both Class III and Class IV pricing endorsements would have triggered indemnity payments throughout the quarter. Class III prices settled below the 95% coverage level 93% of the time, while Class IV prices settled below the 95% coverage level only 67% of the time.
Livestock Gross Margin for Dairy (LGM-Dairy)
LGM-Dairy is a subsidized insurance program administered by the USDA RMA.
LGM-Dairy provides 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 for LGM-Dairy can be purchased on expected milk marketing over a rolling 11-month insurance period. So the coverage period during May includes the months of June 2026 through April 2027. 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.
Livestock Risk Protection (LRP)
LRP is another subsidized insurance program administered by the RMA. The program is a valuable tool for dairy producers as beef-on-dairy and strategic culling decisions are key parts of herd management and business decisions. For dairy producers, LRP coverage is available as LRP-Feeder Cattle (beef-on-dairy calves) and LRP-Fed Cattle (cull cows) with four additional options to select the appropriate coverage, including head count, targeted marketing weight, and coverage length and level. No more than 12,000 head can be covered in a specific coverage endorsement with an annual limit of 25,000 head per farmer per crop year (July 1 to June 30).
The sales period for LRP coverage is open each afternoon after futures prices are settled and closes the following morning. Similar to Dairy-RP, LRP is not available on days when CME trading is closed due to holiday or when major USDA reports impacting prices are released, such as Cattle on Feed. The RMA also has the right to close sales at their discretion.
Production and price outlooks
- March U.S. milk production rose about 2.3% compared to the same month last year, according to the USDA’s preliminary milk production report. (Read: U.S. milk production climbs 2.3% in March as dairy herd grows)
- The Federal Milk Marketing Order (FMMO) advanced Class I base price reached $20.15 per cwt, up $1.49 per cwt from April and up $1.78 per cwt from May of last year. (Read: Economic Update: May Class I base milk price climbs past $20 per cwt)
- FMMO uniform milk prices climbed $1.14 per cwt in March for an average price of $18.55 per cwt across all 11 orders. (Read: Uniform milk prices are firm heading into spring flush)
- The USDA’s April World Ag Supply and Demand Estimates report raised 2026 milk production to 235.3 billion pounds as increases to the dairy cow inventory more than offset slower growth in milk output per cow. (Read: USDA increases 2026 milk production estimates, Class III and all-milk prices projected higher)
