Take a close look at the 2022 dairy margin coverage
For some farms, a nice Christmas present arrived on December 8 when the Farm Service Agency of the United States Department of Agriculture announced it was enrolled in the 2022 Dairy Margin Coverage Program and the Dairy Margin Supplemental Coverage Program. . Registration began on February 13 and will end on February 18, for both programs, at the office of the agricultural services agency in your county.
The potential Christmas present is the new Dairy Margin Supplemental Coverage Program, which provides a window of opportunity for small and medium-sized farms that have significantly increased production over the past 10 years.
The program defines a farm’s production history as the highest of annual milk sales for 2011, 2012 or 2013. Farms that have participated in the past would have received modest “bumps” in production history reflecting annual increases in US production.
If the farm’s production history is less than 5 million pounds per year, this is an opportunity to increase the farm’s production history to 5 million pounds based on milk sold in 2019. We first heard about this program in early 2021, with indications that it would be available to qualifying farms that had purchased 2021 coverage.
It is available for farms that are eligible for 2021, but farms must apply for the Additional Coverage Program and purchase coverage for the 2021 Eligible Additional Books before purchasing 2022 coverage.
The program has been very effective in helping dairy farms cope with low milk prices and high feed prices in 2021, with the advertised margins triggering compensation at a certain level each month.
In 2020, indemnities were triggered in five out of twelve months. Margins are the difference between the US price of whole milk and a feed cost equation.
Farms have the option of purchasing coverage for margins of $ 4 to $ 9.50 per cwt, with premiums increasing for higher levels of coverage. So, if a farm had purchased coverage at the $ 9.50 level, October 2021 would have triggered an indemnity of 73 cents ($ 9.50 – $ 8.77) per cwt for 1/12 of the production history covered. .
In Ohio, 739 farms recorded 3.58 billion pounds of production history in 2021, 213 more farms and 830 million pounds more than in 2020: a good management decision.
Farms that have never participated in the Dairy Margin Coverage program can enroll now through their FSA offices. To see how much the different options will cost, visit milkmarkets.org and use the calculator to look at the different coverage options and premium costs. Additional books from production history will be billed at the full premium rate for the selected coverage.
One more change
The USDA’s final announcement was the adjustment for alfalfa hay in the feed cost formula. Previously, the cost of the alfalfa hay component was based on 50% regular alfalfa and 50% premium alfalfa. The formula will now use 100% premium alfalfa.
This change is retroactive to January 2020 and the margins will be recalculated from that month. Compensation adjustments to participating farms will be automatically generated and transmitted to farms.
One last remark
This program was started as the Dairy Margin Protection Program in the Farm Bill of 2014. This marked the end of the dairy price support program that had been in place for decades. No one had to register for the program; it was a safety net style program for everyone.
Now the focus has shifted from a safety net to protecting a margin. Farms must register to participate. Updates to the program now known as the DMC program have greatly improved its effectiveness for farms participating in higher coverage levels (margins of $ 8.50 to $ 9.50 per cwt).
Other tools are available for dairy managers, such as futures, options, futures prices, livestock gross margin insurance, and dairy income protection insurance. All of these take time to study and make (frequent) decisions, update selections, and usually cost money.
The Dairy Margin Coverage program also takes time to study and make a decision every year. However, once that decision is made, it is made for the year. The premiums are beneficial for farms with a production history of less than 5 million pounds – typically 250 cows or less.
Consider this opportunity when looking to manage milk and feed price risk for 2022. The best thing that can happen is that you have some coverage and no payouts are triggered. But when years like 2021 roll in, it’s good to have some risk coverage.
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