The Dairy Margin Coverage (DMC) program is a “safety net” program supported by the Agriculture Improvement Act of 2018, also known as the farm bill. Through DMC, dairy farmers can protect or cover their enterprises against low margins due to low milk prices, high feed costs, or a combination of the two. It is worth highlighting that, although substantially amended, DMC replaced the Margin Protection Program (MPP)-Dairy released in the 2014 Farm Bill.
Under the context of DMC, the margin is the difference between the All-Milk price and feed costs. To determine the feed costs, DMC uses an equation that includes three variables: the price of corn, the price of soybean meal, and the price of alfalfa hay. One of the most relevant changes of DMC compared to MPP-Dairy is the pricing of alfalfa hay. While MPP-Dairy utilized the U.S. alfalfa hay price, DMC implemented a five-state Premium and Supreme alfalfa hay price. The latter represents a weighted average price for the five largest milk-producing states.
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While waiting for the next farm bill to be passed, we evaluated the impact of changing the alfalfa pricing structure on DMC margins. The figure below depicts the margin from January 2019 to August 2024 using the two hay prices. The orange line depicts the margins reported by DMC using the five-state Supreme and Premium alfalfa hay price. The maroon line depicts the margin using the U.S. alfalfa hay price and represents the hypothetical margin according to MPP-Dairy.
Gonzola Ferreira
October 24, 2024
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