The dairy industry is a global market with a history of volatility in profits from income (milk price and the beef market) and expenses (feed prices). We have already seen this volatility in the futures market for 2025 as the potential impacts of tariffs, other changes in global trade and federal order reform are factored in as new information arises.
Using multiple strategies to manage these risks can help protect your operations from volatility. Dairy Margin Coverage, or DMC, acquired through the U.S. Department of Agriculture, is one of the tools that allows producers to manage both milk price risk and feed cost risk simultaneously. This program allows producers to protect their operations from market fluctuations.
Over the last 15 years, if DMC had been available for the first 5 million pounds of milk production history covered with a $9.50 margin, it would have had a positive net benefit (indemnity payments minus premiums) in 13 of those years. DMC enrollment is open through March 31 at your local USDA FSA office.
Current DMC outlook
The current market projections using the DMC feed cost calculation can be found online at https://dmc.dairymarkets.org. This tool can evaluate the current market projections for feed cost and milk price using DMC calculations. The tool is constantly updated, allowing you to make program decisions and monitor milk prices and costs throughout the year.
As of Feb. 25, the current All Milk Price forecast by month ranges from $21.50-$24.09/cwt, with an average of $22.46/cwt for the year. This is down about $0.70/cwt for the yearly average, with the lowest month down over $1/cwt since mid-January.
The feed cost for the year using the DMC calculation ranges from $9.59-$10.22 with an average of $10.03 to produce a hundredweight of milk. These milk price and feed cost projections lead to a DMC margin range of $11.39-$14.50/cwt with a year average of $12.43/cwt. Over the last month, the DMC margin had declined by $1.13/cwt due to increased feed cost and a lower all-milk price. This range is well above the maximum DMC protectable margin of $9.50, but either a downturn in milk price or an increase in feed cost could lead to the DMC program triggering a payout.
A lot can happen in the world markets, potentially increasing feed costs through domestic or international weather challenges that lower corn and soybean production. While domestic demand for dairy products has shown great resilience, milk prices could see challenges from global markets. The dollar is currently strong, making our exports more expensive on the world market, and changing tariffs could decrease exports. While the current heifer inventory will only allow for small increases in domestic cow numbers, a herd expansion is predicted to increase the milk supply.
As a risk management tool, DMC costs $0.15 per hundredweight for $9.50/cwt margin coverage for the first 5 million pounds of production history. This is significantly less than most other milk price and feed cost risk management tools. Production over 5 million pounds can be covered using Tier 2 coverage at a significantly higher premium cost and only up to an $8 margin. The cost between the two tiers changes for coverage over the $5 margin.
Highlights of DMC include the following:
• Provides protection when milk prices and feed costs create tight margins
• A $9.50 margin for Tier 1 coverage only costs $0.15/cwt
• Tier 2 coverage over 5 million pounds cost significantly more than Tier 1 with coverage over the $5 margin
• Provides a safety net against unpredictable market fluctuations
• Provides coverage for extremely tight margins of $4/cwt for only an administrative fee of $100.
• Enrollment is necessary even if enrolled in the past and coverage election is unchanged
• Enroll through your local USDA Farm Service Agency
• Enrollment ends March 31
When evaluating your risk management strategies, dairy margin coverage is the most economical tool for managing milk price and feed cost risk for the first 5 million pounds of production history. For a production history of over 5 million pounds, dairy margin coverage may not be the most economical tool.
Other options, such as Dairy Revenue Protection, can be considered for production that can’t be covered through DMC. Dairy Revenue Protection can set a floor under your milk price at 95% of the futures market milk price. Since January, second quarter 2025 class IV milk prices have fallen by $1.77/cwt and Class III by $1.06/cwt. Using a multi-pronged approach can help your farm manage your risks.
