For the U.S. dairy producer, the 2025 calendar year was relatively stable, at least according to the Dairy Margin Coverage (DMC) program. For 11 consecutive months, the margin stayed above the $9.50 Tier I coverage level, leaving the program’s safety net untouched. But as the year drew to a close, the market finally blinked.
According to the USDA National Agricultural Statistics Service (NASS) ag prices report released Jan. 30, the December 2025 margin finally dipped to $9.42 per cwt. This 8¢ difference below the $9.50 trigger level officially established the first and only indemnity payment of the 2025 program year.
Math of the Margin
The December drop was driven by a significant softening in the all-milk price that outpaced a slight decline in feed costs. The U.S. average all-milk price for December fell 70¢ month-over-month to land at $19 per cwt.
On the other side of the ledger, total feed costs offered a small amount of relief, falling 8¢ to $9.58 per cwt. While soybean meal saw a healthy drop of nearly $19 per ton and dairy alfalfa hay fell by $5, corn was the lone outlier, rallying 12¢ to hit $4.10 per bushel.
When USDA applied the DMC formula — weighting corn, soybean meal and alfalfa hay — the resulting $9.42 margin left producers enrolled in Tier I coverage with an 8¢ per cwt payment. While the payment is modest, it is subject to a 5.7% sequestration deduction, and USDA has yet to announce a specific timeline for when these funds will hit producer bank accounts.
Stable Year in the Rearview
The fact that December provided the only payment of the year highlights how different 2025 was compared to the volatility of 2023 and 2024. For most of the year, the margin above feed cost remained healthy enough to keep the safety net from triggering. However, experts warn that this 8¢ payment shouldn’t be viewed as a fluke but rather as the canary in the coal mine for what is coming next.
Bleak Forecast for 2026
If December was a warning, the projections for the first half of 2026 are a siren. The latest price predictions updated Jan. 30 suggest a sharp economic turn is underway.
January’s margin is currently expected to plummet to $7.57 per cwt, a staggering $1.93 below the $9.50 trigger level. If this forecast holds, it will represent the lowest margin the industry has seen since August 2023. Current projections indicate margins will remain underwater, staying below the $9.50 Tier I level through at least July 2026.
While markets are famously unpredictable, the current data suggests that the quiet year of 2025 is over. The 2026 program year is shaping up to be one where the DMC program will be called upon frequently to provide much-needed liquidity to dairy operations.
The enrollment deadline for the 2026 coverage year is Feb. 26.
Your Next Read: The 2026 Dairy Outlook: Navigating Volatility, Genetics and the Beef-on-Dairy Revolution
