Milk swirl
August 13, 2020

COVID Creates Havoc With Government Dairy Programs

 |  By: Jim Dickrell

The dizzying impact of the COVID-19 pandemic on consumer food buying habits and patterns has created havoc with both dairy markets and government dairy programs.

The Dairy Margin Coverage (DMC) program is a prime example. Meant to protect milk-feed margins when feed prices shoot up or milk prices plunge, the program has not functioned normally this summer.

“Typically, we would welcome news of rising milk prices and declining DMC payments as that would normally indicate improved market conditions,” says Michael Nepveux, an economist with the American Farm Bureau Federation. “However, many dairy farmers did not see the benefit of rising prices due to negative producer prices differentials (PPDs).”

Due to optimistic 2020 price forecasts, sign-up for 2020 DMC coverage fell by about a third compared to 2019. Crashing milk prices this spring led to indemnity payments of $3.47/cwt in April and $4.13/cwt in May for producers who signed up for $9.50 margin coverage. All of that stopped in June, however, as milk prices rebounded, the all-milk price rose to $18.10/cwt and the milk/feed margin climbed to $9.99/cwt.

The problem was that many producers did not actually realize the $18.10/cwt price because of the negative PPDs in Federal Orders with component pricing. “Looking ahead, it is highly likely there will be no DMC payments in July, a disappointing development as the July Class I milk price has already been announced at $16.56/cwt, which is below the current Class III value of $24/cwt,” says Nepveux. “This [will] result in large negative PPDs for July, at the same time producers enrolled in DMC will go without payments.”

Still, DMC has paid out $196 million to date. The biggest payments have gone to Wisconsin, $46.7 million; Minnesota, $26.1 million; California, $17 million; New York, $11.1 million, and Pennsylvania, $10.8 million.

You can read all of Nepveux’s DMC/PPD analysis here.