USDA officials encouraged by early DMC program signup

A check will soon be in the mail for dairy farmers who signed up for the new Dairy Margin Coverage program (DMC).

The USDA is expected to being issuing the retroactive payments the first or second week of July once the final go ahead is given by the Office of Management and Budget (OMB), said Bill Northey, USDA Under Secretary for Farm Production and Conservation.

The payments are retroactive to January 1, 2019.

"The indemnities earned from the policy at the $9.50 level during the first four months of the year would more than pay the cost of the premium," Northey said during a media teleconference on June 27. 

The DMC is a voluntary risk management program that offers financial protection to dairy producers when the difference between the all milk price and the average feed cost (the margin) falls below a certain dollar amount selected by the producer. It replaces the program previously known as the Margin Protection Program for Dairy (MPP).

Northey told members of the media that since enrollment for the DMC program opened on June 17, more than 5,300 producers have signed up, with the majority of producers hailing from the dairy states of Wisconsin, Minnesota, Michigan, New York and Pennsylvania, as well as California.

"We're seeing a broad range of interest and a broad range of engagement," he said.

Northey said the DMC program was revamped by Congress in the latest Farm Bill which increases the margin coverage levels from $8 to $9.50 for tier 1 production up to 5 million pounds while giving dairy operations the ability to cover production history in five percent increments up to 95 percent.

RELATED: New tools from UW-Extension help farmers navigate DMC program

For dairy operations that choose to lock-in coverage levels until 2023 (5 years), a 25% discount is applied to the premium fees. Northey said changes also provide a little more flexibility for bigger dairy producers on the balance of their production.

"They had a disincentive to participate in the last round, but Congress was very interested in finding ways to be able to help all dairy producers out there that have gone through some really rough times," Northey said.

About 98% of those enrolling in Tier 1, have opted for the $9.50 per/cwt. coverage level on the first 5 million pounds of production. Northey noted that around 1,000 producers elected to sign up for Tier 2 coverage for the balance of their enrolled production. 

"Of those, 900 have selected the $4 per/cwt. level and 100 insured the $5 margin, Northey said.

Of the 5,364 producers participating in the DMC program, Northey notes that around 3,000 have used some of their credits from the previous MPP premiums in excess of indemnities — almost $14 million worth of credit — to pay for this year and future years' premium costs for the DMC program.

"Those who took the cash option can choose to receive 50% of the repayment in cash or apply 75% of that credit for premium payments," said Northey, adding that those repayments total around $70 million.

While Northey noted that milk prices have moved upwards over the past month, that gain has been tempered by the increase of other farm costs.

"I think there's some hope that the margins are going to be a little bit better in the dairy business. We've seen prices move up a bit but the cost of feed has also increased too," Northey said. "We don't know what the balance of the year is going to bring, but the program is certainly going to be in the $100s of millions to help producers."

Last year, 21,000 producers participated in the MPP and Northey is hoping that this year's signup will exceed that number.

"Last year we saw a lot of folks waiting towards the end of the signup period," Northey said. "Hopefully we'll continue to see that signup increase because it's going to be a very valuable program to many of our producers."

Producers that have yet to decide are encouraged to use a new web-based decision tool – developed in partnership with the University of Wisconsin – to help dairy producers evaluate various scenarios using different coverage levels through the new DMC program.

The decision tool assists producers with calculating total premiums costs and administrative fees associated with participation in DMC. It also forecasts payments that will be made during the coverage year.

"(During the first week of signup) we had over 10,000 visits to that site," Northey said. "We're continuing to see a lot of interest but people are busy — making hay or taking care of the cows. We need to make sure this stays out in front of folks.

"This is a great opportunity for producers to be able to participate in a program that's not going to solve all the challenges that our dairy producers are facing out there, but it offers a little bit of support in a very challenging time," he added.

Sign up for the DMC program through the USDA Farm Service Agency runs through Sept. 20, 2019. For more information, contact your local Farm Service Agency.