The U.S. Department of Agriculture’s Farm Service Agency recently announced that the March 2019 income over feed cost margin was $8.85 per hundredweight (cwt.), triggering the third 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,” FSA Administrator Richard Fordyce said. “Under certain coverage levels, the amount to be paid to dairy farmers for the months of January, February and March already exceeds the cost of the premium.”
The sign-up 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 minus $8.85 margin equals 65-cent difference.
Sixty-five cents times 95 percent of production times 2,500 cwt. (30,000 cwt. divided by 12) equals $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.
Three million times 95 percent equals 2,850,000 divided by 100 equals 28,500 cwt. times 0.150 premium fee equals $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.