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September 24, 2019

What You Need To Know About The Dairy Margin Coverage Program

 |  By: Anna-Lisa Laca

The U.S. Department of Agriculture (USDA) today extended the deadline to September 27 for dairy producers to enroll in the Dairy Margin Coverage (DMC) program for 2019. More than 21,000 farms have enrolled in the program (roughly 51% of licensed dairies). To date, the program has triggered payments in all months from January through July, with more than $230 million paid to farmers. 

Visit your local USDA Farm Service Agency office to sign up for the program. 

Here's what you need to know:

What is DMC? A new version of the Margin Protection Program (MPP), DMC is a voluntary program that makes payments when the national average income-over-feed-cost margin falls below a farmer-selected coverage level. ) Coverage is now available from $4 per hundredweight to as high as $9.50 per hundredweight. Unlike MPP, program payments may be triggered monthly and are made if the DMC margin falls below the farmer’s elected coverage level.

How much milk can I cover with the program? Coverage can range from 5% to 95% of a farm’s milk production history, but can only be covered in 5% increments. For example, you can cover 85%, but you couldn’t cover 87% of your production.

Can you explain Tier 1 and Tier 2 coverage? Tier 1 coverage is the first 5 million pounds of production covered by a farm. DMC coverage thresholds for tier 1 production were raised to $9.50. Coverage for Tier 2 remains capped at $8 per hundredweight, however John Newton of the American Farm Bureau Federation says the program is designed to encourage coverage at the $5 and $4.50 levels for farmers covering more than 5 million pounds of milk.

What’s this premium discount I’ve heard of? When a farm enrolls in DMC they may receive a 25% premium discount if they make a one-time election for both the coverage level and the amount of milk enrolled in the program. For example, a farmer electing the Tier 1 $9.50 coverage option would receive a 25% discount on premiums for all five coverage years – reducing the premium from 15 cents to 11.25 cents per hundredweight – if a one-time election is made.

Is this program really better than MPP? Newton pulled together these charts which compare net benefits, i.e., program payments minus premiums, from DMC $9.50 coverage to $8 coverage for both the Bipartisan Budget Act-improved MPP and the original MPP from 2015 to October 2018.

DMC

Can you explain the hay change in the feed cost calculation? The new farm bill requires USDA to begin including the price for high-quality alfalfa hay in the NASS monthly price surveys as measured by the volume of milk produced in the top five dairy-producing states. National Milk Producers Federation is urging USDA to include this price point in the DMC calculation, but this has not been finalized.

Can I participate in DMC and LGM-Dairy? Yep. The farm bill fully removes the restriction on participation in both the DMC and the Livestock Gross Margin-Dairy (LGM-Dairy) program. Don’t forget, FSA will administer DMC and the Risk Management Agency administers LGM-dairy, but USDA says the agencies are in coordination and producers should have no challenges participating in both programs.

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