Consolidation in US Dairy Farming
by James M. McDonald, Jonathan Law & Roberto Mosheim
https://www.ers.usda.gov/sites/default/files/_laserfiche/publications/98901/ERR-274.pdf

Dairy Market Coverage: What it is and Why it Matters
https://www.fsa.usda.gov/sites/default/files/2025-01/FSA_DMC_fact%20sheet_1_17_25.pdf

The Dairy Markete Coverage program, commonly called DMC, is a voluntary federal safety net program administered by USDA’s Farm Service Agency. It provides financial assistance when thenational margin between milk proces and feed costs becomes dangerously small. 

HOW DMC WORKS: USDA calculates a national dairy margin: U.S. all-milk price – calculated feed cost =DMC margin. The feed-cost calculation uses national prices for corn, soybean meal and premium alfalafa hay. Producers select a coverage level between $4.00 and $98.50 per hundredweight. When USDA’s calculated margin falls below the selected level, the program issues a payment on the producer’s covered production history. 
For example, if a producer selects $9.50 coverage and USDA calculates the margin at $7.50, the payment difference is $2.00 per hundredweight on the eligible milk covered under the policy.

Beginning in 2026: 
*Tier 1 coverage applies to the first 6 million pounds of production history.
*The highest coverage level is $9.50 per hundredweight.
*Producers may insure a selected percentage of their established production.
*Existing dairies receive a new production history based on their highest milk marketings from 2021, 2022 or 2023.
*Producers may lock in coverage for 2026 through 2031 and receive a 25% premium discount.
Tier 1 coverage is substantially more affordable than Tier 2 covreage. At the $9.50 level, the Tier 1 premium is 15 cents per hundredweight. Coverage above $8.00 is not available on production exceeding the Tier 1 limit.

WHY DMC MATTERS: Dairy farmers cannot control the price they receive for milk, yet feed represents one of their largest expenses. A sharp decline in milk prices, an increase in feed prices, or both can erase a dairy’s operating margin very quickly. DMC provides the money during periods of severe margin conpession. That payment may help a farm purchase feed, pay utilities, meet loan obligations or continue operating until market conditions improve. It’s importance became especially clear in 2023, when the national DMC margin fell below $4.00 during June and July. USDA reports that the program paid dairy producers nearly $1.3 billion that year. For smaller and midsized dairies, affordable Tier 1 coverage can provide meaningful protection. These farms generally have fewer financial reserves and less ability to survive a prolonged period of losses.

WHAT DMD DOES NOT DO: DMC is important, but it should not be mistaken for a solution to the underlying dairy crisis. The DMC margin is a national formula–not the acutal profit margin of an individual dairy. It does not fully account for:
*Labor
*Fuel and Electricity
*Veterinary expenses
*Repairs and equipment
*Interest and debt payments
*Milk hauling and marketing deductions
*Replacement-animal costs
*Regional differences in feed prices
*The actual mailbox price received by an indivual producer.

A farm can therefore be losing money when the national DMC margin is too high to trigger a payment. DMC also does not guarantee a farmer a market for their milk. It does not address processor consolidation, cooperative accountability, volume premiums, excessive hauling charges or the loss of milk buyers in rural communities.

THE BOTTOM LINE: DMC matters because it can help keep dairy farms alive during periods when milk income fails to keep pace with feed costs. It is one of the few federal programs specifically designed to respond to collapsing dairy margins. Farmers should not have to depend on government payments to survive a marketplace that routinely pays them less than the true cost of producing milk.