Introduction and Overview of DMC
With a looming enrollment deadline of Friday, Sept. 20, fewer producers than anticipated have opted to enroll in Dairy Margin Coverage, the 2018 farm bill’s improved replacement for the Margin Protection Program. USDA is working diligently to communicate the deadline and potential benefits of participating in the program to the approximately 50% of the nation’s dairy producers who have yet to sign up. Additionally, USDA has developed a decision aid tool to help producers understand the program and determine the best coverage options.
An improvement on MPP, DMC is a voluntary insurance-style program that makes payments when the national average income-over-feed-cost margin falls below a farmer-selected coverage level. Coverage is available from $4 per hundredweight to as high as $9.50 per hundredweight in Tier I, and up to $8 per hundredweight in Tier II. Dairy producers pay premiums for coverage, with premium rates rising in step with the level of protection. Program payments, which may be triggered monthly, are made if the DMC margin falls below the farmer’s elected coverage level. Program payments are based on the amount of milk covered in the program and may range from 5% to 95% of a farm’s milk production history in 5% increments. The program has two tiers; Tier I covers up to 5 million pounds and has more affordable premiums than Tier II, which covers any milk over the first 5 million pounds. A farmer can enroll milk in Tier II at a different coverage level than Tier I. When a farmer enrolls in DMC, he or she may receive a 25% premium discount for a one-time election –binding for five years – on both the coverage level and the amount of milk enrolled in the program.
AFBF’s Market Intel team has already conducted an in-depth review of DMC and an analysis of some of the preliminary projected payments.
DMC Enrollment Rates to Date
Between the opening of enrollment on June 17 through September 8, 19,132 dairy operations have signed up for DMC. This is equivalent to 51% of the 37,500 licensed dairy farms in the U.S, and 71% of the 26,800 dairy farms with established production history through USDA’s Farm Service Agency.
Sign up is not evenly distributed across all states in terms of either absolute numbers or percentage of operations. With over 5,200 operations participating, Wisconsin has the most dairy operations enrolled, followed by Minnesota, New York and Pennsylvania.
In terms of production history volume, a few other states rise to the top. California has the most milk enrolled, with over 25 million pounds, followed by Wisconsin (21M lbs.), New York (8.8M lbs.), Idaho (8.7M lbs.) and Texas (7.4M lbs.). California, Idaho and Texas tend to have larger operations, so it makes perfect sense they will have more milk but fewer operations enrolled.
In terms of percentage of farms, the higher percentages are concentrated in the Midwest and New England, with other pockets such as Texas through Colorado. Still, these numbers are somewhat lower than one would expect given the attractiveness of the program and the high probability of program indemnities, i.e. payments.
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