Experts are predicting that Dairy Margin Coverage (DMC) will average between $11.85/cwt and $12.20/cwt during 2024. If this projection holds true, it will mark the highest average margin for a calendar year under the DMC program and the highest since margin protection became the foundation of the federal safety net program for dairy in 2015. For some perspective, the DMC for 2023 averaged significantly lower, at $6.70/cwt.
Katie Burgess, dairy market advising director with Ever.Ag, says their model is also forecasting an annual margin around $12/cwt for 2024.
“Although that number is moving around a bit given all the recent volatility in milk prices,” she says. “Milk and grain futures are currently projecting that on-farm margins stay strong into 2025 – our model currently averages around $12/cwt for next year, too.”
With relatively ‘cheap’ corn prices, Dan Basse, president of AgResource Company, advises dairy producers to chop as much corn as possible and consider managing feed costs strategically. He specifically recommends purchasing December corn call options and selling puts before mid-September.
“We think that DMC margins hold, but at slightly lower levels,” Basse notes. “Feed prices should bottom in the next 30 days and trend higher into year-end on strong U.S. corn export demand.”
Expected Trends in Feed and Corn Prices
According to Basse, these trends suggest that the DMC could decline slightly due to rising feed costs, with the milk market holding within a broad range. This nuanced outlook on the feed market brings into focus the balance between managing input costs and maximizing output revenue for dairy producers.
“We doubt that September or December corn can trade too far below $3.50-$3.60 longer term support,” Basse says. “So, pack the bags, bunkers and bins with cheap feed. Note that we feel that soymeal prices can decline further – so this is more about rising corn than soybean meal.”
In essence, while corn prices are expected to increase, soymeal prices might continue to decline, thus requiring a vigilant approach to feed management for optimal cost efficiency.
Utilize Risk Management Tools
One thing that top dairy producers do is follow, understand and utilize risk management programs. Leland Kootstra with Frazier LLP recently told Peggy Coffeen, the host of UpLevel podcast, that producers spend too much time thinking about the cost of some of those [risk management] tools versus what that cost actually buys.”
Particularly, he notes the value of dairy-specific tools that limit exposure, like DMC and Dairy Revenue Protection (DRP).
“These operators have spent so much time, so much effort, so much money making sure that they are as efficient as possible, that they’re controlling as much of the volatility as they can,” he says. “Why would they expose themselves to volatility outside of their control?”
Burgess shares a few key points that producers should keep in mind:
- Right now, futures are projecting strong margins into 2025 – but markets are volatile, so make sure to play some defense.
- Feed costs are currently cheap – look for opportunities to lock in lower priced feed and take advantage of those markets this fall.
- Most importantly, as feed costs are getting set for the year ahead, also consider protecting milk prices. DRP insurance is a great way to do so – you can put on floor under milk prices to protect the milk-over-feed margin that is available today. And, then if milk markets remain strong into next year, there’s still the opportunity to capture even larger margins.
