The USDA’s Farm Service Agency announced this week that the March 2019 income over feed cost margin was $8.85 per hundredweight, triggering the third dairy safety net payment for dairy producers who purchase the appropriate level of coverage under the new Dairy Margin Coverage program.
DMC, which replaces the Margin Protection Program for Dairy, offers protection to dairy producers when the difference between the all milk price and the average feed cost (the margin) falls below a certain dollar amount selected by the producer.
“I encourage all dairy operations to sign up for DMC when we begin accepting applications in June,” said FSA Administrator Richard Fordyce. “Under certain coverage levels, the amount to be paid to dairy farmers for the months of January, February and March already exceed the cost of the premium.”
The signup period for DMC opens June 17, 2019. Dairy producers who elect a DMC coverage level between $9 and $9.50 would be eligible for a payment for January, February, and March 2019.
For example, a dairy operation that chooses to enroll an established production history of 3 million pounds (30,000 cwt.) and elects the $9.50 coverage level on 95 percent of production would receive $1,543.75 for March
$9.50 – $8.85 margin = $0.65 difference
$0.65 x 95 percent of production x 2,500 cwt. (30,000 cwt./12) = $1,543.75
DMC premiums are paid annually. The calculated annual premium for coverage at $9.50 on 95 percent of a 3-million-pound production history for this example would be $4,275.
3,000,000 x 95 percent = 2,850,000/100 = 28,500 cwt. x 0.150 premium fee = $4,275
The dairy operation in the example calculation will pay $4,275 in total premium payments for all of 2019 and receive $8,170 in DMC payments for January, February, and March combined. Additional payments will be made if calculated margins remain below the $9.50/cwt level.
All participants are also required to pay an annual $100 administrative fee in addition to any premium, and payments will be subject to a 6.2 percent reduction to account for federal sequestration.
Operations making a one-time election to participate in DMC through 2023 are eligible to receive a 25 percent discount on their premium for the existing margin coverage rates. For the example above, this would reduce the annual premium by $1,068.75.