Dairy Margin Coverage and how it may help your borrowers

By: Joleen Hadrich, Associate Professor, Extension Economist

Dairy Margin Coverage (DMC) is a voluntary federal program available to dairy farms across the country, which can be used to help stabilize dairy farm revenue.  DMC replaces the previous Margin Protection Program (MPP).  DMC makes payments to enrolled farms when the national average income over feed cost margin falls below the coverage level selected by the farmer. A number of coverage levels are available for dairy farmers with varying premium rates. 

Tier I vs Tier II

Tier I feed margin coverage levels range from $4.00/cwt to $9.50/cwt with a limit of 5 million pounds of milk.  Tier II covers milk production over 5 million pounds.  The premium cost varies by coverage level and Tier I vs II production.  A $9.50/cwt margin coverage level has a premium cost of $0.15/cwt. 

DMC examples and logistics

If a 100 cow dairy farm chooses a $9.50/cwt margin coverage level and their average milk production is 22,000 pounds-their total premium for 2019 is $3,300.  They will receive an indemnity if the monthly feed margin is below $9.50/cwt.  If the average feed margin is $9.02/cwt for the year, the 100 cow dairy will receive a $10,560 indemnity which gives them a net gain of $7,260 for the year. 

A 500 cow dairy with an average milk production of 24,000 pounds of milk per cow will not be able to cover all of their milk at the Tier I premium rates—rather they can cover 5 million of the 12 million pounds of milk they produce annually, or 41.67% of their milk production.  Choosing a $9.50/cwt coverage level, their premium cost will be $7,500.  Their expected indemnity with an average $9.02/cwt feed price is $24,000 to yield a $16,500 net gain for the year.  They can choose to cover milk production over 5 million pounds using Tier II premiums or the Dairy Revenue Protection Program available through RMA.

DMC sales will begin on June 17 at local Farm Service Agency offices.  If dairy farms participated in MPP in 2014-2017 they are eligible for a premium rebate which can be allocated to 2019 premiums.  Dairy farms are also eligible for a 25% premium discount if they sign up for 5 years of DMC, which is the length of the Farm Bill.  Additional information for DMC is available at https://extension.umn.edu/dairy-news/dairy-risk-management.

Other tools

Dairy Revenue Protection (Dairy RP) is another one of the risk management tools available to dairy producers.  This is an insurance program, much like crop insurance, and will be discussed in an upcoming article.  Stay tuned for additional details regarding this new risk management tool available for dairy producers.