With the fall harvest dominating your days, keeping an eye on risk management may be secondary. To keep track of price protection options, Progressive dairy provides monthly online updates of key dates and reports on risk management tools.
Supply, hot temperatures, and tight income margins impacted US milk production growth in August as the number of cows declined and milk per cow reversed. (Read: Hot Summer Cools Down Milk Production Growth.)
Looking ahead, the September World Ag Supply and Demand Estimates (WASDE) report reduced both milk production projections for 2021 and 2022 slightly due to expectations of lower cow numbers and slower growth in milk yield per cow. On the income side of the ledger, the WASDE report slightly raised the 2021-22 price projections for butter, cheese and low-fat dried milk, offering a slightly better outlook for Class III and IV prices than previous projections. On the production cost side, the yield forecasts for corn and soybeans were raised, which put these markets under pressure. (Read: USDA Outlook Reduces Milk Production Estimates And Forecasts Better Margins.)
Income margins for dairy products were stable to slightly stronger in the first half of September, with only limited movements in both the dairy and animal feed markets Commodity & Ingredient Hedging LLC.
If you look at consumption, export strength was an important pillar for the dairy markets. (Read: U.S. Dairy Exports Are Difficult to Contain.)
Domestic sales of liquid milk products fell again in July. Conversely, the USDA’s estimated total cheese consumption for 2021 increased by more than 4% compared to January-July 2020, with butter consumption increasing by 0.5%. Concerns about the COVID-19 variant had an impact on how and where dairy products were purchased. According to a monthly update from the International Dairy Deli Bakery Association (IDDBA), retail sales of August dairy products exceeded August 2020 (up 0.5%) and August 2019 (up 11%) levels. A survey by Information Resources Inc. (IRI) showed that consumers are increasingly eating self-prepared meals, keeping takeaway and restaurant deliveries constant, but eating less on-site. (Read: Weekly Digest: Retail Dairy Products Reveals The Impact Of The COVID Variant.)
Dairy Margin Coverage (DMC) program
Not much more information has emerged on the USDA’s recent announcements about the DMC program:
- A change to the monthly calculation of feed costs, with the monthly average DMC hay prices being adjusted to give more recognition to the premium milk quality alfalfa fed by dairy farmers
- An additional $ 580 million DMC program for small and medium-sized businesses
Dairy farmers should wait for these details to become available before contacting their local USDA service center for more information.
Milk and feed price factors used to calculate DMC program margin in August 2021 and potential compensation payments will be released by the USDA on September 30th and published on the Progressive dairy Website. The DMC program margin as of September 2021 and potential compensation payments will be released on October 29th.
In addition, the registration period for the DMC program 2022 is expected shortly, which usually takes place between October and December of the previous year.
Dairy RP and LGM Dairy
Dairy Revenue Protection (Dairy-RP) and Livestock Gross Margin for Dairy (LGM-Dairy) are two government-subsidized risk management programs administered by the USDA’s Risk Management Agency. Both Dairy-RP and LGM-Dairy are sold and delivered exclusively through private crop insurers.
The availability of Dairy-RP and LGM-Dairy is affected by Veterans Day and Thanksgiving holidays in November (see calendar).
Click the calendar here or above to view it full-size in a new window.
Dairy-RP is available every day except bank holidays and USDA reporting days which could affect markets, including milk production, cold storage and dairy product reports. Dairy-RP is also not available on days when the corresponding futures contracts move up or down. Dairy-RP offers protection against an unexpected drop in sales (yield and / or price) in milk. Dairy RP coverage is generally available for milk produced four or five quarters in the future, so producers should be able to protect prices as early as the first quarter of 2023.
Sales periods for the LGM Dairy program are open weekly, but unlike Dairy-RP, they are also available if a sales period falls on the day of a USDA report. LGM Dairy Factors are calculated using the average closing prices of the Chicago Mercantile Exchange (CME) Class III Milk, Corn, and Soybean Meal Futures Tuesday through Thursday of each week. The policy sales period begins on Thursday at 4:30 p.m., with sales ending on Friday at 9:00 a.m. (both Central Time). LGM Dairy cover is available for 12 months, except for the first month. You must select coverage in two-month increments to receive a USDA premium grant.
Things to consider
A concern that is heard most often Progressive dairy refers to milk yield calculations under Dairy-RP. Total milk production estimates are pretty accurate based on the checkoff dollars they generate, but the estimated cow numbers are based on voluntary USDA surveys, which can tarnish average milk yield calculations when milk production is divided by the number of cows. Using genomics, sexed semen, and higher reproductive efficiency, dairy farmers select and breed cows that may exceed yield estimates. As a result of purchasing Dairy RP coverage at the lower projected yield, higher revenues from higher actual milk yields per cow can offset a decline in milk prices, which may leave some producers ineligible for compensation. Discuss this with your Dairy RP insurance company.
- The Pennsylvania Center for Dairy Excellence hosts a monthly webinar on Protecting Your Profits. Zach Myers, CDE Risk Education Manager, reviews current dairy market data to aid decision making and risk management strategies. A replay of the September 22 webinar is available here. The next webinars will take place on October 27th. and 24.11. from 12 noon (Eastern time). Prior registration is not required. To participate in the webinar, click on here or phone: (646) 558-8656. When prompted, enter the meeting ID 848 3416 1708 and passcode 474057.
- The administrators of the Federal Milk Marketing Order (FMMO) will announce uniform prices, bundled dates and producer price differentials earlier this week beginning October 11th Progressive dairy Website for updates.