The USDA has released eagerly awaited details related to the Dairy Margin Coverage (DMC) program. The announcement, Dec. 8, covers:

A few questions remain, but here’s what we know so far. Check back with Progressive Dairy for updates.

While the original DMC program established an eligible baseline on milk marketings in years 2011, 2012 and 2013, the supplemental DMC provision allows small and midsized producers to use actual 2019 milk marketing, enrolling supplemental pounds up to a maximum of 5 million pounds.

Approved in a COVID-19 relief bill in December 2019, the adjusted milk production baseline is effective retroactive to January 2021 and runs through the life of the current farm bill and DMC program, including 2022 and 2023 DMC coverage years.

Eligible producers will be required to provide the USDA’s Farm Service Agency (FSA) with their 2019 milk marketing statement. Supplemental DMC will require a revision to a producer’s 2021 DMC contract and must occur before enrollment in DMC for the 2022 program year (see below).

According to the original provisions in the COVID-19 relief bill, no supplemental payments are permitted on milk production above 5 million pounds per year. And not all of the increase in the production history will be eligible for a supplemental payment. The program limits that payment to cover 75% of the difference between an eligible dairy operation’s actual 2019 milk marketings and its previous DMC milk marketing history.

As outlined in the original bill, coverage levels (percentage of milk production covered and margin covered) on the additional milk must be equal to the coverage selected previously for 2021 (and beyond) on the original production history.

Any increase in milk production history covered under supplemental DMC also means the producer will have to pay the additional margin insurance premiums on that milk. As with the regular program, 2021 DMC indemnity payments are subject to a 5.7% sequestration deduction.

The supplemental DMC provision is funded at $580 million.

The USDA is also changing the DMC feed cost formula to better reflect the actual cost dairy farmers pay for high-quality alfalfa hay.

In 2019, the USDA began using a 50-50 hay blend price in DMC feed cost calculations. That formulas used the monthly average U.S. price for all alfalfa hay in 27 major hay-producing states and a monthly weighted average price for “premium dairy hay” (Premium/Supreme alfalfa hay) in the five largest milk-producing states: California, Idaho, New York, Texas and Wisconsin.

Under the new formula, the FSA will calculate hay costs using 100% premium dairy-quality alfalfa hay prices.

According to Progressive Dairy calculations, the 50-50 blended hay price used in DMC feed cost calculations in 2020 averaged about $14 per ton less than the premium dairy-quality hay average price, from a high of $19.50 per ton to a low of $9 per ton. Through the first 10 months of 2021, the difference between the 50-50 DMC blend price and the premium dairy-quality hay price has averaged about $15.60 per ton, ranging between $12-$18 per ton.

Based on those differences, multiplied by the DMC hay factor of 0.0137, means producers would see a feed cost difference – and a corresponding reduction in the monthly DMC margin – of about 19.3 cents per cwt in 2020 and 21.9 cents so far in 2021.

However, there were no DMC indemnity payments issued at any coverage level in January, February, June, July, August, October and November 2020, and the hay price adjustments aren’t enough to trigger payments for those months.

And with DMC coverage available in 50-cent increments ($9.50, $9, $8.50, $8, $7.50, $7, $6.50, $6 and $5.50 per cwt), the hay factor adjustments of 19-20 cents also aren’t large enough to trigger DMC payments for substantially more program participants with DMC coverage insurance at lower levels.

Additionally, 2021 DMC payments are subject to 5.7% sequestration deduction; 2020 payments were subject to 5.9% sequestration deduction.

Finally, the sign-up period for the 2022 DMC program will run from Dec. 13, 2021, to Feb. 18, 2022, at USDA FSA offices. For DMC enrollment, producers must certify with the FSA that the operation is commercially marketing milk, sign all required forms and pay the $100 administrative fee. The fee is waived for farmers who are considered limited resource, beginning, socially disadvantaged or a military veteran.

To determine the appropriate level of DMC coverage for a specific dairy operation, producers can use the online dairy decision tool.

The USDA is also amending Dairy Indemnity Payment Program (DIPP) regulations to add provisions for the indemnification of cows that are likely to be not marketable for longer durations, as a result, for example, of per- and polyfluoroalkyl substances (PFAS). The FSA also worked closely with USDA's Natural Resources Conservation Service to target assistance through the Environmental Quality Incentives Program and other conservation programs to help producers safely dispose of and address resource concerns created by affected cows.

Additional details on these changes to DMC and DIPP can be found in a rule that will be published soon in the Federal Register. A copy of the rule is available here.  

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