Risk Management: What to Know at DMC Enrollment, and the Year Ahead
There have been some great enhancements to the Dairy Margin Coverage (DMC) program, so it is important to sign up for 2022 coverage.
Increasing Production History
One new enhancement is being able to increase your milk production history through the Supplemental Dairy Margin Coverage program. If you have more pounds of milk production in 2019 than 2011, 2012 or 2013, you can increase your production history base, so it more accurately reflects what your true production history. These opportunities to update production histories are not common, so you will not want to miss out on your chance to do so now.
The first item of business is to update your production history. This can be done beginning on December 13, 2021. Call your office for an appointment. Once you complete this be sure to sign up for the retroactive payments going back to January 2020. It is not totally clear how much these payments will be, but we know it will be much larger than the premiums! Do not hesitate to do this! The last step is to enroll in the 2022 program.
ARM Services has studied how various dairy risk management programs have performed over the past thirteen years We’ve back tested this program to see how it would have performed DMC would have had a payment greater than the cost in every year except one, 2014. In 2014 the average Class 3 milk was over $23.00 per hundred! From our perspective of having built risk management plans for more than 13 years, we highly recommend that dairy farmers sign up for Tier 1 coverage up to 5 million pounds at the $9.50 level. For any additional base pounds, we recommend selecting coverage at the $5.00 level. This additional coverage should only cost about $0.005/cwt, which makes it an incredible value in volatile markets.
The Year Ahead
With DMC locked in for 2022, you might be feeling well protected. ARM Services believes that you should increase your protection by managing the Class 3 milk price using LGM. LGM dairy works well when milk price falls. DMC works well when feed costs are high. They are different. They both have a place in your “toolbox”. The dairy markets are in a unique situation, right now, making it a great opportunity to place a floor on your milk price. Rarely, have you been able to forward protect values at these levels. ARM Services has focused our efforts on maximizing the return for our farmers, and that means protecting the price from falling and never placing a cap on the price. Overtime, the greatest loss observed is hard locking the price, or selling call options on your production. This is much larger than the LGM Dairy premiums. Please be careful and be profitable if the price rises sharply.
ARM Services has the experience and resources to share with you to not only protect your bottom line in the volatile markets, but to make your hard work of producing high-quality milk worthwhile. Call us today at 715-456-5607 and ask your questions. We are happy to share our knowledge and strategy to deliver a profitable 2022 and beyond.