By Tiffany LaMendola, WUD Contract Economist, Blimling & Associates

As 2021 comes to a close, it is the perfect time for dairy producers who haven’t already to seriously consider securing 2022 milk price and/or milk margin protection. While milk prices have thankfully recovered some, markets are still turbulent and the outlook for 2022 is far from clear. With escalated costs to contend with, removing milk price risk from the table remains top of mind.

There are several viable options for California dairies to consider. We will touch briefly on three programs. Beyond these three programs, traditional avenues such as forward contracting via your cooperative/creamery or execution through your own brokerage account are always available. Producers with questions should not hesitate to reach out to Tiffany LaMendola (209–768–6313) to discuss in further detail.

1. Dairy Margin Coverage (DMC) Program

Where to sign–up: Your local FSA office (Service Center Locator)

Deadline: FSA has yet to release 2022 sign–up details. We understand there are some delays potentially associated with software. Expectations are for more information soon – we will be sure to notify members as soon as possible.

General program details:

  • Offers producers an opportunity to protect a margin over feed of up to $9.50 per hundredweigh
  • Margin is based on US all milk price and a dairy ration (corn, soybean meal and alfalfa)
  • Updates to the alfalfa price series going forward (and will likely trigger retroactive payments for 2020–21)
  • Coverage ideal for five million pounds per year (416,667 pounds per month) – beyond this volume, costs for coverage escalate considerably for the higher margin levels
  • 2021 monthly payments averaged +$3.00 through September

2. Dairy Revenue Protection (DRP) Program

Where to sign–up: via a crop insurance agent. Tiffany LaMendola can assist (209–768–6313).

Deadline: For first quarter (Jan–Mar) 2022 coverage, deadline is coming quick December 15th. For all other quarters, deadline is the 15th of the preceding month.

General program details:

  • Allows producers to protect milk price revenue. In the simplest terms, DRP provides milk price floors
  • Can select between Class III and Class IV milk
  • Can customize to herd’s specific component levels
  • “Trigger” or floor price levels are based on the futures markets at time of coverage
  • Premiums are subsidized via USDA
  • Coverage can be taken for any amount of milk up to 100% of production for five–quarters out
  • Current Q1 2022 opportunities are attractive relative to history.
    • Current Class III floor/trigger price of $17.63 for $0.23 cents/cwt (Compares to the five–year average of $15.48)
    • Current Class IV floor/trigger price of $18.30 for $0.15 cents/cwt (Compares to the five–year average of $14.74)

3. Livestock Gross Margin (LGM) Program

Where to sign–up: via a crop insurance agent. Tiffany LaMendola can assist (209–768–6313).

Deadline: Coverage available each Thursday (excluding holidays).

General program details:

  • Offers producers an opportunity to protect a margin based on Class III milk, corn and soybean meal  (note: no Class IV coverage available)
  • Different coverage levels (“deductibles”) available depending on preference
  • Can choose to minimize or maximize feed impact (or simply choose default)
  • Premium cost subsidized by USDA
  • Some notable improvements to the program have brought this program back to life:
    • No longer any volume limitations in place
    • Now for sale each week, rather than just once a month
    • Can pick and choose tenor

There are many options available to help provide some security for the year ahead. Preferences will vary depending on your situation. Note: producers can participate in the DMC program alongside the DRP or LGM program. While participation in both DRP and LGM are permitted, coverage can not overlap for the same time period (i.e. if you have DRP coverage for Q1, you cannot take out LGM coverage for Jan, Feb or March). Reach out with any questions! (Tiffany LaMendola is available to WUD members for consultation. Email her this week at [email protected] to get the ball rolling on price protection for your dairy)

Sponsored By