There are 8 business days left to sign up for 2021 Dairy Margin Coverage (DMC). DMC serves as a highly effective risk management tool for dairies with herds up to about 250 cows, and it provides partial protection for larger herds. Below are some frequently asked questions as well as HighGround recommendations for coverage.
If I have Dairy Revenue Protection (DRP) or Livestock Gross Margin (LGM – Dairy) coverage, should I enroll for DMC as well?
Yes, DRP and LGM-Dairy are private crop insurance products offered through insurance agencies, while DMC is a federal program offered through the local offices of USDA’s Farm Service Agency (FSA). Producers can stack their coverage from either DRP or LGM-Dairy with DMC. HighGround recommends that you do both because of value DMC provides can supplement any existing strategy at a relatively low cost. If you have not signed up for DRP/LGM-Dairy or have any questions at all about these programs, schedule a free consultation with a HighGround Agent today!
What DMC Coverage Level should I sign up for?
Coverage with DMC is split into two tiers. Producers can cover their first 5 million pounds of production annually with Tier 1 Coverage. These 5 million pounds get split across all 12 months of 2021, so for producers with larger herds, the maximum amount covered under Tier 1 per month is about 416 thousand pounds. Example: A 3,000 cow herd producing 82 lbs/cow/day that has an annual production of about 90 million pounds would only be able to cover about 5.5% of their production under Tier 1. The Coverage Levels for Tier 1 range from $4.50 up to $9.50 with 50 cent increments. Regardless of your herd size, HighGround recommends Tier 1 at the $9.50 Coverage Level. At a cost of $0.15/cwt, this is a great value for margin protection at a level that has a high probability of paying out. For Tier 2, HighGround recommends that producers select the $5.00 Coverage Level at cost of $0.005/cwt. The higher Tier 2 Coverage Levels become very expensive, and HighGround believes producers would get better value out of either DRP or LGM-Dairy coverage rather than paying up for Tier 2 DMC coverage.
How has Dairy Margin Coverage (DMC) performed in 2020?
In 2020, there were 13,499 dairy operations enrolled in DMC. Total payouts expected for the year are approximately $199.5 million. In April and May, the actual margins were $6.03 and $5.37, respectively. For producers with Tier 1 coverage at the $9.50 level, this resulted in significant payouts back to the farm. Click here for a full breakdown from the USDA FSA on DMC enrollment and payouts in 2020.
With all the uncertainties being carried into 2021, HighGround strongly recommends that dairy producers utilize every tool available to protect their bottom line. If you have any questions regarding DMC, DRP, LGM-Dairy, or any other risk management tools, do not hesitate to send us a note at firstname.lastname@example.org.