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Updated January 26, 2024
Farm Bill Primer: Support for the Dairy Industry
The Dairy Margin Coverage (DMC) program was enacted
annual selection. In return, milk producers received a 25%
in the 2018 farm bill (P.L. 115-334) to support dairy
discount on premium costs.
operations. The DMC program replaced the 2014 farm
bill’s Margin Protection Program (MPP; P.L. 113-79, as
FSA calculates and reports the DMC milk-feed margin each
amended by P.L. 115-123, the Bipartisan Budget Act of
month (Figure 1). If margin payments were triggered,
2018). Prior to 2014, the U.S. Department of Agriculture
producers are paid for a twelfth of covered annual milk
(USDA) purchased dairy products to support milk prices at
production history. Payments under DMC are subject to
certain levels. Many stakeholders believed the support
sequestration reductions of 5.7% in 2021-2024.
program failed to account for rising feed costs. In 2014,
Table 1. DMC Premium Rates, $ per cwt
Congress created a margin program to allow milk producers
to select a guaranteed margin on milk production. The
Tier I ≤ 5
Tier II > 5
Margin
margin is the difference between the USDA national all
million lbs.
million lbs.
milk price and a calculated feed cost, providing producers
$4.00
$0
$0
optional risk protection on price and feed costs.
$4.50
$0.0025
$0.0025
$5.00
$0.005
$0.005
DMC was to expire on December 31, 2023, but Section 102
$5.50
$0.030
$0.100
of the Further Continuing Appropriations and Other
$6.00
$0.050
$0.310
Extensions Act, 2024 (P.L. 118-22, Division B), extended it
$6.50
$0.070
$0.650
until December 31, 2024. The extension includes
$7.00
$0.080
$1.107
supplemental DMC that was authorized in the 2021
$7.50
$0.090
$1.413
appropriations act (see “DMC Adjustments”).
$8.00
$0.100
$1.813
$8.50
$0.105
NA
DMC Basics
$9.00
$0.110
NA
DMC allows milk producers to buy a guaranteed margin for
$9.50
$0.150
NA
their milk production. For example, if the margin—all milk
Source: Agricultural Improvement Act of 2018 (P.L. 115-334).
price minus feed cost—amounted to $9.00 per
hundredweight (100 pounds; cwt) of milk for a month,
To date (January 2019-November 2023), there have been
producers who selected $9.50 margin coverage would
59 months of margin calculations, and producers who opted
receive a $0.50 per cwt DMC payment on covered
for a $9.50 margin have received payments in 35 months.
production. Under DMC, producers may select margin
Producers selecting margin coverage under $9.50 have
coverage from $4.00 per cwt up to $9.50 per cwt for annual
received payments in some of those months, particularly in
milk production of 5 million pounds or less (Tier I). For
2021 and 2023. Payments on the $4.00 catastrophic margin
milk production over 5 million pounds (Tier II), the margin
triggered in June and July 2023 for the first time under
coverage tops out at $8.00 per cwt. The $4.00 margin, or
DMC. The annual average monthly margin was $9.61 in
catastrophic coverage, is free for all dairy producers. For
2019, $9.45 in 2020, $6.92 in 2021, $10.72 in 2022, and
margin coverage above $4.00, producers pay increasing
$6.54 through November 2023.
premium rates as specified in statute (Table 1).
A participating dairy producer must have an established
milk production history with USDA’s Farm Service
Agency (FSA) and pay an annual administrative fee of
$100. The fee is waived for beginning, limited resource,
socially disadvantaged, or veteran producers. Each year,
dairy producers participating in DMC choose a margin
coverage level and the share of their milk production
history to cover—from 5% to 95%—and receive DMC
payments for months in which the margin is triggered.
The total premium amount that producers pay for margin
coverage above $4.00 per cwt is a product of the margin
level premium that is set in statute and the share of
production history the producer selects. Initially, producers
had the option to purchase either Tier I or II margin
coverage for the full five years of DMC, instead of an
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Farm Bill Primer: Support for the Dairy Industry
Figure 1. DMC Milk-Feed Cost Margins, January 2019-
Other Dairy Provisions
November 2023, $/cwt
The 2018 farm bill reauthorized the Dairy Forward Pricing
Program (DFPP, 7 U.S.C. §8772), the Dairy Indemnity
Payment Program (DIPP, 7 U.S.C. §4553), and a provision
in the Dairy Promotion and Research Program (DPRP, 7
U.S.C. §4504).
DFPP allows milk producers and milk handlers/processors
to negotiate forward contracts for milk used in Class II (soft
products), Class III (cheese), or Class IV (butter/powder)
products that are pooled on Federal Milk Marketing Orders
(FMMO). Class I fluid milk may not be forward contracted.
Handlers pay the agreed on contract price instead of the
FMMO calculated minimum blend price.
DIPP makes payments to dairy producers who have to
dispose of raw milk because of chemical, radiation, or
pesticide contamination. In 2021, DIPP regulations (7
Source: USDA, FSA.
C.F.R. 760) were amended to give USDA the discretion to
Excluding 2020, on average, 72% of dairies with
indemnify producers for the depopulation of cows affected
established production history participated in DMC, and
by long-term contamination.
71% of their milk production was covered. Total payments
The DPRP provision reauthorizes the use of funding to
under DMC have totaled over $3.2 billion to date (Table 2).
develop international markets in the generic promotion and
research program (dairy checkoff) that is producer-funded
Table 2. Dairies Enrolled in DMC, Covered
by a $0.15/cwt assessment on milk production.
Production, and Total Payments
Billion
$
The 2018 farm bill established the Milk Donation
Dairies
%
%
lbs.
million
Reimbursement Program (MDRP) to pay certain costs of
2019
23,390
73.3
178.0
66.4
$451
fluid milk donations that producers, processors, and
cooperatives make to food banks and feeding organizations.
2020
13,506
45.0
120.9
47.4
$234
The donation program received mandatory funding of $9
2021
19,073
67.0
161.9
68.5
$1,187
million for FY2019 and $5 million annually for FY2020-
2022
17,976
71.2
155.9
71.4
$84
FY2023. The Dairy Donation Program, which is similar to
the MDRP, was created by the Consolidated Appropriations
2023
17,085
74.7
154.6
77.0
$1,266
Act, 2021, and funded at $400 million in response to
Source: USDA, FSA, DMC Program Enrol ment Information,
disruptions caused by the COVID-19 pandemic. This
updated January 2, 2024; 2023 payments through November 2023.
program reimbursed certain costs for dairy product
donations and was authorized through September 1, 2023.
Note: Percentage share of dairies with established production
history and their covered share of milk production.
Unlike the 2014 farm bill, milk producers using DMC also
are allowed to participate in Livestock Gross Margin-Dairy
DMC Adjustments
and Dairy Revenue Protection insurance programs.
USDA made key adjustments to DMC following
implementation in 2019. First, the 2018 farm bill directed
In addition, the 2018 farm bill amended the FMMO formula
USDA to begin reporting premium alfalfa hay prices.
for the Class I skim milk price. During the pandemic, the
USDA’s initial feed cost formula contained a 50-50 blend
change resulted in lower minimum prices milk handlers
of alfalfa and premium alfalfa prices. In December 2021,
paid to producers in FMMOs (see CRS Report R45044,
FSA changed the formula to 100% premium alfalfa to
Federal Milk Marketing Orders: An Overview). Some dairy
better reflect producer costs. This resulted in a higher
stakeholders have asked that the old formula be restored.
calculated feed cost, lower calculated margins, and higher
Dairy Policy in the Next Farm Bill
DMC payments compared with the prior feed formula.
DMC is usually viewed favorably by dairy stakeholders as
USDA paid dairy producers the difference in the two
an improvement in risk protection, especially for Tier I
margin calculations retroactive to January 2020 for months
production. Dairy stakeholders noted the effectiveness of
margin payments were triggered.
DMC in both House (June 2022) and Senate (May 2023)
agriculture committee hearings on dairy policy. As milk
The Consolidated Appropriations Act, 2021 (P.L. 116-260),
producers confront rising costs for feed and other inputs,
authorized supplemental DMC payments based on milk
they may look to Congress to evaluate the adequacy of
marketings in 2019. If 2019 actual milk marketing volumes
dairy policies.
exceeded established production histories, producers could
receive payments on 75% of the difference. Eligible milk
Dairy stakeholders have suggested the supplemental
producers must have participated in DMC during 2021 and
payment authority for updated production histories be
have actual milk marketings of less than 5 million pounds.
included in a future farm bill. Current production histories
For the additional production, producers pay the Tier I
are based on production levels from 2011, 2012, or 2013.
premium and may cover this milk for 2021 through 2023.
Total milk production in 2023 was about 14% higher than
the average of these three base years. Until the DMC
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Farm Bill Primer: Support for the Dairy Industry
supplemental was enacted, milk producers were unable use
An expanded dairy donation program could also be
DMC to protect milk productivity gains.
supportive of milk prices. Donations may allow producers
to avoid dumping milk under certain circumstances.
Some stakeholders may argue the catastrophic $4.00 margin
is not high enough or that the top margin level needs to be
A consideration for Congress is that these types of changes
raised to provide adequate income support. DMC premium
could raise the projected cost of a farm bill.
rates favor dairies with 220 or fewer cows. Reduced Tier II
premium rates or higher margin levels could lead to
Joel L. Greene, Analyst in Agricultural Policy
increased use of DMC by larger dairies.
IF12202
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