With the signup period for 2022 coverage under USDA’s Dairy Margin Coverage (DMC) program now underway, producers are eager to see how this spells out in terms of dollars and cents. The USDA will begin issuing additional payments for dairy farmers who enrolled in 2020 and 2021 DMC coverage.
With a record of more than $1.1 billion DMC payments expected to be distributed to dairy producers under the 2021 program, National Milk Producers Federation (NMPF) is urging every dairy farmer to sign up for maximum DMC coverage.
“Signing up for DMC, which offers cost-effective margin protection for small and medium-sized producers as well as inexpensive catastrophic coverage for larger dairies, is a no-brainer for 2022, especially considering the improvements we fought for in Congress and advocated for at USDA,” Jim Mulhern, president and CEO of NMPF says. “This year has illustrated just how valuable this program is for those producers that can take advantage of it, and DMC will once again be an essential part of many farmers’ risk management in the coming year.”
The new feed adjustment calculations utilizes 100% premium alfalfa hay, which differs from previous years, as they only used a 50/50 blend price of regular alfalfa hay to determine the monthly margin.
With feed costs calculations retroactive back to January 2020, Robin Schmahl with AgDairy, a division of John Stewart and Associates, states, “The new calculations are going to give producers an additional $3.19/cwt. This is pretty significant on top of what producers have already received.”
Dairy operations with 2020 and 2021 contracts will be paid automatically for the applicable months. Projecting the new feed adjustment formula, Schmahl states producers will see an average of $0.20.5/cwt. for feed adjustment through DMC.
Eligibility Checklist
All U.S. dairy operations, whether a single owned or multiple owners who market milk, are eligible for DMC. An eligible dairy operation must conduct these steps:
- Provide production history to the FSA. Producers should reach out to their processors to get updated production history. For most operations, production history is based on the highest milk production in 2011, 2012, and 2013. Newer dairy operations have other options for determining production history. The production history determined for a dairy operation participating in the DMC program may only be adjusted once to reflect any increase in the national average milk production.
- Register to participate by signing up through your local FSA office.
- Pay an annual $100 administrative fee for each year of participation, except if the dairy operation qualifies for a waiver (what makes them qualify).
Eligible DMC participants are also eligible to participate in the Livestock Gross Margin (LGM) and the Dairy Revenue Protection Program (DRRP), both of which are administered by the USDA.
Producers who are enrolled in DMC through 2023 only need to enroll in the Supplemental DMC program, which will be retroactive to Jan. 2021 for producers enrolled in DMC this year. To do so, you will need to complete a form at your FSA office to modify your existing DMC production history. If you are still considering whether to sign up for DMC for 2022, it is important to note that you can only participate in the Supplemental DMC program if you are also participating in the underlying DMC program.
Multiple Options
Producers have multiple options for coverage each year. Basic catastrophic coverage of $4/cwt. is free, except for the annual $100 administrative fee. Farms can insure their first 5 million pounds of milk production history, designated as Tier I, in 50-cent increments from $4/cwt. up to $9.50/cwt. Annual production that is above 5 million pounds falls into Tier II. Coverage options in Tier II range from $4/cwt. to $8/cwt. Producers must also select a coverage percentage of the dairy operation’s production history ranging from 5 % to 95%, in 5% increments.
Kyle Tranel with ever.ag recommends dairies sign up for the $9.50 coverage level at .15/cwt. every year on a maximum level of 5 million lbs./year. “After that, it is a conversation on what tier 2 level ($4.00-$5.50 coverage level) to select on the rest of the milk,” he shares. “This tier 2 level is disaster coverage. If the DMC maximum of 5 million lbs. of milk per year does not cover the dairy’s annual production, dairies should look at other avenues such as DRP, LGM, or the CME.”
To determine the appropriate level of DMC coverage for a specific dairy operation, farmers can also use the online dairy decision tool.
Qualifications
Supplemental DMC coverage is applicable to calendar years 2021, 2022 and 2023. Participating dairy operations with supplemental production may receive retroactive supplemental payments for 2021 in addition to payments based on their established production history. The supplemental pounds are based upon a formula using 2019 actual milk marketing, which will result in additional payments. Producers must provide FSA with their 2019 milk marketing statement.
Producers are urged to contact their local Farm Service Agency (FSA) office by Feb. 18, 2022, to sign up. Producers can also revise 2021 DMC contracts and then apply for 2022 DMC by contacting their local FSA office.
As a reminder, the DMC program can be utilized with any other marketing program and strategy that is used for risk management. For more information, visit farmers.gov DMC webpage or contact your local FSA office.
