The outlook for dairy producers continues to be strong for the remainder of the year, despite milk futures retreating some – albeit still high compared to less fruitful years – and an anticipated high-yielding 2024 harvest. October’s income-over-feed cost projections remain in dairy producers’ favor for a profitable month with the margin just shy of $16 as of Sept. 24.
Regardless of the buzz surrounding dairy markets, producers should still consider risk management strategies to lock in that potential profitability in the month ahead.
Here’s Progressive Dairy’s look at important dates, reports and advice affecting risk management decisions, as well as other information impacting the milk check in October.
The August 2024 DMC margin and indemnity payment will be announced Friday, Sept. 27, with September’s margin calculated Oct. 31.
The remainder of the year looks promising as month after month the income-over-feed costs continues to widen in favor of dairy producers’ pocketbooks. As of Sept. 24, the August 2024 margin forecast was at $13.30 per cwt and the yearly average has grown to $12.28 per cwt. HighGround Dairy’s latest market update states, “While higher corn and soybean meal futures have slightly tempered the outlook, stronger milk prices – for both Class III and Class IV – are boosting margins. Producer margins are historically strong …”
Dairy producers managing risk through Dairy-RP are eligible to cover revenue quarterly, up to five nearby quarters. In October, Dairy-RP coverage is available for the first quarter of 2025 (January through March) through the first quarter of 2026.
The market changes daily, and Dairy-RP endorsements must be purchased between the Chicago Mercantile Exchange (CME) market closing and the next CME opening. Dairy-RP is not available on days when applicable futures contracts move limit-up or limit-down, or on days when CME trading is closed due to holidays (see Calendar).
Also, Dairy-RP coverage cannot be purchased on days when major USDA dairy reports that could impact markets are released. This includes Milk Production, Cold Storage and Dairy Production reports.
LGM-Dairy is another subsidized margin insurance program administered by the USDA Risk Management Agency.
The insurance program provides a protection when feed costs rise or milk prices drop, and can be tailored to any size farm. The program uses futures prices for corn, soybean meal and milk to determine the expected gross margin and the actual gross margin. LGM-Dairy is similar to buying both a call option to limit higher feed costs and a put option to set a floor on milk prices.
Coverage can be purchased on expected milk marketing over a rolling 11-month insurance period. So the coverage period during October includes the months of November 2024 through September 2025.
The sales period for the LGM-Dairy program are open on a weekly basis. Unlike Dairy-RP, LGM-Dairy is available even if a sales period falls on the day of a USDA report. Premium payments are due at the end of the insurance period.
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