Milk Margins Hit Lowest Level Since 2019 Dairy Margin Coverage Authorization

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by: Daniel Munch, Economist, American Farm Bureau Federation reports:

For the month of June, the Farm Service Agency reported a $3.65 per hundredweight milk margin above feed costs, the smallest margin since the Dairy Margin Coverage program was authorized in the 2018 farm bill. High 2022 milk prices dropped precipitously through much of 2023, shrinking thousands of dairy farm families’ milk checks.

A combination of increased production in the first half of the year, depressing export demand and persistently high operating expenses have contributed to the fall in prices. With an impending national Federal Milk Marketing Order hearing scheduled to begin in late August and ongoing farm bill discussions, much focus will be on the dairy industry in the coming weeks and months.

The Dairy Margin Coverage (DMC) program provides a level of risk protection to dairy producers under low margin conditions, which is when milk prices are low and/or feed costs, on average, are high. This voluntary program provides payments when the calculated national margin falls below a producer’s selected coverage trigger.

The margin is the difference between the average price of feedstuffs (the price of hay, corn, and soybean meal) and the national all-milk price.

June was the sixth consecutive month with calculated margins below the upper $9.50 per hundredweight trigger cutoff, at just $3.65 per hundredweight. This marks the 31st month of margins below the $9.50 per hundredweight top trigger level out of the 54 total active months of DMC, meaning at least some payments have been triggered for 57% of the program’s duration.

It also marks the first time the program’s “catastrophic” $4.00 margin level has been breached, a premium-free level of protection. Prior to May ($4.83/cwt) and June ($3.65/cwt) of this year, DMC milk margins were lowest in August 2021 ($5.03/cwt). In the analyzed period, DMC milk margins were at their highest in May 2022 at $12.51 per hundredweight.

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