Dairy Margin Coverage - Foundational Risk Management for your Milk Production

Answers to Some Questions You Might Have

By Katelyn Walley-Stoll, Farm Business Management Specialist

August 15th, 2021 with updates on January 6th, 2022

For dairy farmers, milk production and profitability can be a tricky thing to plan for. It's even trickier when you take into consideration all of the different places where systems can break down, prices can drop, and life (or a more visual term synonymous with manure) happens. Knowing your options for farm risk management, especially dairy price risk management, is important to make sound decisions to help protect your farm financially.

Dairy Margin Coverage (DMC) is one risk management tool dairy producers can use to help protect against low milk prices and/or high feed costs. Enrollment occurs annually, and for 2022 you can sign up between December 13th, 2021 and February 18th, 2022.

Super Brief History: If you're new to DMC, you might remember the old MPP (Margin Protection Program) and MILC (Milk Income Loss Contract) programs. DMC is the United States Department of Agriculture (USDA) Farm Service Agency's (FSA) current voluntary program for dairy farm risk management. DMC was authorized in the 2018 Farm Bill. As of December 6th, 2021 there were 2,024 participating farms in NYS (74% of total dairy operations) representing 81% of total milk production. DMC has been a net positive for participating farms in almost every year of its history except 2014.

What's New?

There have been some changes to DMC for the 2022 program year. You can read more about those changes in my recent article here.

What's it Do?

DMC pays participating dairy operations when the difference (margin) between the national milk price and the national average cost of feed falls below a certain, selected level. The margin is calculated using national averages, not farm specific feed costs and milk prices. Farms choose their coverage levels based on their production history.

How is Production History Calculated?

Pounds of milk that you can enroll/cover, unless you're a new farmer, is based on your highest milk production in 2011, 2012, and 2013. This is called your "Production History".

What's Supplemental DMC Enrollment?

If your milk production has increased from your 2014 "historical milk production" level (above), you can add supplemental coverage. This is only for producers with less than 5 million pounds of production and uses 2019 actual milk production. Payments are retroactive to 2021 and coverage can be selected for 2021 - 2023.

What do I Select?

Dairy producers select two different variables to insure. If you lock in your coverage selections for 2022 AND 2023, you can receive a 25% premium discount. These include:

1. Coverage Level is the margin price that will "trigger" a payment. You can choose levels form $4.00 to $9.50 per cwt in $0.50 increments. Catastrophic coverage is $4.00/cwt. The higher you choose the more likely you'll receive a payment, especially in 2022, but your premium due will be higher as well.
2. Coverage Percentage is the portion of your production history, in cwt, that you'll cover. You can select to cover 5% to 95% of your production history in 5% increments. Your premium price is on a per cwt basis.

How much does it cost?

The minimum catastrophic coverage only costs an annual $100 administrative fee. For higher coverage levels, you'll also be required to pay additional premiums based on your selected coverage level (Table below).

Is this the right program for me?

More often than not, DMC is profitable for farms - and, at the bare minimum - provides some peace of mind to balance out price fluctuations. There is a really handy tool available at dmc.dairymarkets.org where you can put in your farm's specific information and see what historical performance might have been AND estimate future performance at various coverage levels. It's important to note that, at this time, the forecasted 2022 margin is $9.19 and monthly margins range from $8.75 to $9.61.

When do I get Paid?

If the milk margin drops below $9.50, you may be eligible for a payment depending on the coverage level you chose. In 2021, payments were triggered in every month at various levels less than $9.50.

Am I Eligible?

Farms that ship milk in the United States are able to participate. This includes a variety of business models, including partnerships with multiple producers and even beginning farmers. Participating in other risk management programs, like Livestock Gross Margin for Dairy Producers Program and Dairy Revenue Protection Program, does not exclude you from participating in MPP (ie - you can participate in all three!).

What's the Process?

Call your local FSA office to get the ball rolling sooner rather than later, especially if you haven't participated before. They'll help you determine your production history, register, select your coverage level, and select your coverage percentage. Contact your local USDA Service Center for More Information: Allegany County, Cattaraugus County, Chautauqua County, Erie County, Steuben County

Want to do some more digging? Here are some resources used to put this article together that go even further!

• FSA's Dairy Margin Coverage Program Fact Sheet
• Decision Making Tool
• Dairy Margin Coverage Final Rule

This material is based upon work supported by USDA/NIFA under Award Number 2018-70027-28588 as part of Cornell University's New York Dairy and Livestock Risk Management Education Project. 

Written by Katelyn Walley-Stoll, Cornell University Cooperative Extension, Southwest New York Dairy, Livestock, and Field Crops Program. For more information, contact 716-640-0522, kaw249@cornell.edu, https://swnydlfc.cce.cornell.edu/. SWNYDLFC is a partnership between Cornell University and the CCE Associations of Allegany, Cattaraugus, Chautauqua, Erie, and Steuben counties. CCE is an employer and educator recognized for valuing AA/EEO, Protected Veterans, and Individuals with Disabilities and provides equal program and employment opportunities.