As deadline to register nears, here's what you need to know about Dairy Margin Coverage

Grace Connatser
Wisconsin State Farmer
The net benefit for Dairy Margin Coverage payments increases as you purchase a higher level of coverage.

The last day to register for the US Department of Agriculture-backed insurance program Dairy Margin Coverage is Dec. 11. Here's what you need to know about 2021 enrollment.

While not much has changed about the inner workings of DMC this year, it's still a good idea to sign up for even the minimal amount of coverage due to COVID-19 concerns, said Mark Stephenson, director of the Center for Dairy Profitability at University of Wisconsin-Madison.

"We've got a lot of movements in the marketplace, and I would say during (the summer and fall), it reflected optimism," Stephenson said. "Right now it's probably reflecting pessimism in the markets. ... We've still got a lot of risk in 2021 markets."

You can use an online decision tool to understand how your choice of coverage will protect your dairy operation, whether you weigh in at 5 million or 10 million pounds. If your annual historic milk production is 5 million or less pounds, you may only apply for Tier 1 coverage, but if you produce more than that, you can apply for Tier 2 coverage.

The graph shows how much in payments dairy farmers have made from the Dairy Margin Coverage program since 2010, with the Coronavirus Food Assistance Program added in 2020.

Tier 1 coverage levels include options up to $9.50 with a premium of 15 cents per hundredweight. Tier 2 goes up to an extra $8 with a premium of $1.81 cwt. The program has triggered several payments this year (March, April, May and September) due to market volatility with the coronavirus, and further instability is expected for 2021. 

"For 15 cents, (this) is really inexpensive risk management," Stephenson said. "If you're a farm that's got five million pounds of historic production or less, maybe this is all the risk management that you need on your farm. It means that for all the rest of your costs, such as feed and labor, utilities, insurance, that type of thing, you've got $9.50 worth of protection out here."

The tool also offers a historical analysis section that will show you the net benefit of signing up for the program based on past years' prices and the history of your farm. Producers are shown to have received many payments in 2012, 2013 and 2018, for instance. The tool also shows projections of when your coverage would trigger based on milk price, using the coverage choices you make in the tool.

Stephenson said 2020 was supposed to be a price recovery year after a hard slump since 2015 that especially hit in 2019, with 2020 markets looking optimistic. But then, he said, COVID-19 hit and turned the entire industry on its head, triggering almost as many payments this year as the last. However, he said this year has not been that bad overall.

The graph shows the actual and expected Dairy Margin Coverage levels that will pay out to farmers over time.

"If you managed your risk last year, it has not been as bad as we expected at all, particularly by the time we got into April and May," Stephenson said. "This was supposed to be a price recovery year, but it turns out that we've actually received some payments under here, and you may have received as much as $6.20 in CFAP payments."

For many Wisconsin producers, Stephenson said markets are looking up at the moment as all-milk prices have risen recently, encouraging dairy farmers to buy more milking cows. He said many cows were sold between March and June as dairy operations were looking dire, but the industry has weathered the storm since then. 

"Right now, I would say we are officially in the range where this is big milk production," Stephenson said. "Notice that in June, we had tightened dairy cow numbers from March, so part of the way we met those base access plan restrictions was by culling cows. But as prices turned around, we began to add capacity, and now we've got more cows than we've had at any point in time this year. So our capacity to produce milk continues to increase."

Many dairy cows were culled or sold in spring 2020 due to overproduction of milk, ending in many farmers having to dump their milk because of school and restaurant closures.

Sandy Chalmers, executive director of the state Farm Service Agency, said she hopes more dairy farmers will consider enrolling in DMC coverage with what little time they have left. She said she is worried farmers won't be able to survive another "rollercoaster year" without the protection the DMC provides. 

"DMC ... has provided a degree of certainty for dairy producers during some of the most uncertain times we've seen in recent years, so I do hope that producers will weigh that certainty and the resulting peace of mind that can result for your operation and your family," Chalmers said.

Dec. 11 is a firm deadline, Chalmers said, with applications for financial assistance from the Coronavirus Food Assistance Program 2.0 also closing the same day. She said FSA offices are not taking in-person visits and you should instead call, email or schedule a video chat with someone if you need help with the application. 

More than 40% of dairy operations in the state have enrolled in the program, Chalmers said, with many of them electing a 95% coverage option. She said the program has added convenience for farmers through offering a digital signature option you can use on your phone and offering to take the premium cost automatically out of your milk check.

"Three clicks and it's done. You don't even have to get off your tractor, much less drive into town," Chalmers said. "We've gotten great feedback from producers on this digital signature option, so (it's) obviously a time saver for producers and they're really appreciating the convenience."