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DMC enrollment lags behind 2019

Digital Vision/ThinkstockPhotos farmer walking in dairy barn
U of MN's Marin Bozic encourages industry stakeholders to reach out to dairy producers in support of DMC before Dec. 11 deadline.

The number of dairy operations enrolling in the Dairy Margin Coverage program is lagging behind last year and proponents are making one last push to get producers enrolled at their Farm Service Agency offices before the Dec. 11 deadline.

The Dairy Margin Coverage program is a farm bill program that pays farmers when the all-milk price and the average feed price falls below a certain dollar amount selected by the producer.

The program is available to producers regardless of size, said Marin Bozic, University of Minnesota assistant professor. It is a voluntary program in which producers must elect to enroll to be eligible for coverage.

As of Nov. 30, about 7,800 dairy producers across the nation had enrolled. Wisconsin had the most in raw numbers, with more than 2,400 producers enrolled. Minnesota had nearly 1,000, New York, 600, and California, around 400. In 2019, more than 21,000 dairy operations enrolled.

When looking at percent of operations enrolled, Minnesota is on top with 44% of operations enrolled for 2021 production, compared to 80% for 2020 production. Overall, 32% of U.S. dairy producers have enrolled their 2021 production, compared to 51% who enrolled their 2020 production.

120420DMCSignupStatistics.png

Bozic said the program is a good deal for producers, particularly for the first five million pounds of milk covered.

"For every $1 paid in premium over the last 10 years, dairy producers would have collected $9 in gross indemnities, gross payments, before premiums," he said. "There are few programs that are as effective as Dairy Margin Coverage in providing protection."

Premium rates are lower for the first five million pounds and coverage is available for as low as $4 per hundredweight to as high as $9.50 per hundredweight, according to American Farm Bureau. Program payments are based on the amount of milk covered and may range from 5% to 95% of a farm's milk production history.

Producers can use the Dairy Margin Coverage Decision Tool to analyze what level of coverage works best for them, Bozic said.

Marin BozicDairy Margin Coverage Tool

Trouble brewing

Bozic said there are several factors that could pose downward pressure on milk prices in 2021.

There has been less demand for dairy products consumed away from home as the COVID-19 pandemic has shuttered restaurants and schools. In 2020, the Farmers to Food Box program provided an outlet for dairy products, but it is unknown if this program will continue under the incoming Biden-Harris administration.

In September, year-over-year milk production in the United States up was 2.4% and in October, it was up 2.3% over October 2019.

"Nationally, anything about 2% is a red flag and may induce depressed prices over the next six to nine months," he said. "When you look around the nation we have seen a large number of states growing very aggressively."

Texas, Minnesota, Michigan and Pennsylvania are all growing more than 2%, Bozic said. Slaughter data suggests producers are retaining more cows, signaling more herd expansion, which doesn't bode well for prices in the first half of 2021.

Currently, he is forecasting the DMC payment will exceed 80 cents per hundredweight in 2021 at current futures prices. In 2020, producers who signed up for 5 million coverage and paid a premium recovered more than $30,000 in indemnities.

Marin BozicDairy Margin Coverage Performance

Marin BozicDMC Forecasts For 2021

What's the plan?

Bozic encourages a full-court press to encourage producers to sign up for Dairy Margin Coverage. Between now and the Dec. 11 deadline producers need to hear from USDA Farm Service Agency staff, industry media, land grant educators, dairy processor or cooperative staff members and fellow dairy producers who are using the program as a risk management tool.

"Dairy Margin Coverage is an effective program that is going to make a difference in 2021," he said. It should be the cornerstone of dairy farmers' risk management plans.

He would be pleased if the number of producers who signed up exceeded the number who signed up in 2019 by 5 to 8 percentage points.

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