Two Powerful Safety Nets for Dairy Producers – Are You Covered?

As dairy producers know all too well, the dairy industry is prone to significant volatility and risk. Fluctuations in milk prices, feed costs and other factors can wreak havoc on profit margins. Fortunately, there are two important risk management tools available to dairy operations.

Dairy Margin Coverage (DMC)

DMC is designed to help provide risk protection to dairy producers when the difference between the national all-milk price and the national average feed cost (the margin) falls below a certain dollar amount selected by the producer. The 2024 signup opened on February 28. The signup deadline is April 29, 2024.

DMC allows dairy producers to select a $4.00 to $9.50 coverage level per hundredweight. When enrolled, participating dairy operations receive payments anytime the monthly margin falls below the selected coverage level. In 2023, the program paid producers 11 out of 12 months.

For 2024, the January margin was announced at $8.48, which will pay producers $1.02/cwt. at the $9.50 coverage level. Current forecasts show DMC paying producers in February with no payments projected after that. Although not many payments are projected, producers are still encouraged to sign up as markets remain volatile.

Dairy Revenue Protection (DRP)

In addition to DMC, another risk management option for dairy producers to consider is Dairy Revenue Protection (DRP). DRP is also a USDA program, but it is run through an insurance provider. The plan insures for unexpected declines in the quarterly revenue from milk sales. DRP sets a quarterly price floor based on Chicago Mercantile Exchange (CME) futures prices. It does not factor in feed costs like the DMC program. Based on recent forecasts, DRP is projected to pay many enrolled producers in quarters 1 and 2 in 2024.

DMC + DRP

Both DMC and DRP can serve as important tools to help mitigate risk exposure for dairy operations. Given the high volatility and unique risks dairy producers often face, having multiple risk management solutions available is beneficial. By stacking DMC with DRP, producers can attain a more comprehensive safety net to help ride out tough markets.

Next Steps

Dairy producers interested in learning more about the DMC program are encouraged to reach out to their local FSA office prior to the April 29 deadline. You can also contact your Farm Credit East advisor and Crop Growers agent to discuss these risk management programs in more detail and determine if they are a good fit for your operation's strategy.

If you are interested in learning more about DMC and DRP or developing a risk management plan, please contact your local Crop Growers agent or our Dairy & Livestock Risk Management Specialists at livestock@cropgrowers.com.