A combination of rising supplies and fears of lower demand due to the coronavirus worsened the economic outlook for U.S. dairy producers, with margins under the Dairy Margin Coverage program falling.
The January 2020 Dairy Margin Coverage margin was $10.72 per cwt., a drop of $1.23 per cwt. from the December margin, according to USDA data. This drop was the combined outcome of a $1.10 per cwt. lower all-milk price and a $0.13 per cwt. higher calculated DMC feed cost for January, compared with a month earlier. The January margin was $0.27 lower due to the incorporation of dairy-quality alfalfa in the DMC feed cost formula, which began in 2019.
At the end of February, USDA’s DMC Decision Tool, which can be accessed online, projected the DMC margin would drop sharply for the first several months of 2020 and fall below the $9.50 per cwt. coverage level for April through August. Based on that forecast, coverage at that level would pay an average of $0.18 per cwt. for all of 2020, which was above both the one-year and the 5-year discounted costs of that coverage.
As of Feb. 18, USDA reported that 13,024 dairy operations, or 47.71 percent of operations with production histories, had enrolled in the 2020 DMC program. Many of these enrollees are operations that signed up for 5-year coverage last year. Enrolling in the DMC program at the generous coverage and affordable premiums available will always be a highly recommended risk-management option for dairy farmers, and this year is a case in point. Just a month ago, the USDA DMC Tool indicated that the DMC margin would not drop below $10.00 per cwt. anytime during 2020 and thus would generate no payments during the year.