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Economist says Dairy Margin Coverage formula might need changes

An economist says the formula for the Dairy Margin Coverage program, or DMC might need changes.

Danny Munch with American Farm Bureau Federation tells Brownfield the currently low costs for soybean meal, corn, and premium alfalfa used in the DMC formula do not reflect the real margin for most producers. “So, when crop prices are this low, it makes the milk margin under the DMC program look really high and none of the triggers over that $9.50 margin are triggered.”

Munch says the DMC program has not been triggered lately, so no payments have been made for seventeen months even though actual margins have been declining.  He says producers have started talking about some possible changes to the formula. “How can, you know, the program perhaps be enhanced, maybe looking at a floor for feed costs that will allow folks, for instance, who grow their own feed and might not be reflected in the futures prices or the market prices USDA is using to set the factored average feed costs. That’s an idea that is being thrown around.”

Munch says there are countless other costs that go into dairy that are not part of the DMC formula. “The additives, the minerals, that’s been talked about to me as well. Fuel costs, how can that play a role in it? You can talk about so many things. The fact of the matter is when the program was formulated, they were looking at simplification, and that was one of the best metrics they looked at as feed was one of the largests costs for producers.”

And Munch says the cost of labor for milk production is also not considered.

Munch says farm organizations have been talking about DMC issues over the past few weeks and are starting to look at what possible recommendations they will make to improve the program.  He says American Farm Bureau Federation is open to supporting changes through their usual policy process.

AUDIO: Danny Munch discusses the Dairy Margin Coverage formula with Brownfield’s Larry Lee during World Dairy Expo.