Current Discussions on the Dairy Margin Coverage Program in 2026

Introduction

The Dairy Margin Coverage (DMC) program has been in place since 2019, when it replaced the Margin Protection Program for Dairy. Seven full program years are now in the books. The program has paid out over $3 billion in indemnities through 2025, has been reauthorized through calendar year 2031 under the One Big Beautiful Bill Act, and has had its Tier I production history ceiling raised from 5 million pounds to 6 million pounds beginning in the 2026 program year. At the same time, the dairy industry has changed. Herds are larger. Non-feed costs have risen. The dairy product complex has also continued to evolve in ways that the price discovery system does not fully capture.

This article compiles current discussions among industry participants, academic economists, and producer organizations about the DMC program. The four questions that follow address how DMC has functioned, what current market conditions mean for the program, and the broader risk management landscape. The analytical detail behind the answers is in the references and the appendix.

The Dairy Margin Coverage Program has historically served as a relatively good risk management tool for dairy operations. Is that still the case?

Math through seven years of program history is favorable for the operations the program was designed to serve. Over the 2019 through 2025 period, the program triggered payments in 39 of 84 months at the $9.50 Tier I coverage level. The average gross payment was $0.97 per cwt of covered production, calculated across all 84 months, including the months with no payment, against an annual premium of $0.150 per cwt of covered production at the $9.50 level. Across the period, indemnities ran on the order of five to six times the premiums paid for the operations the program targets. At the national level, DMC paid out over $3 billion in total indemnities through 2025 against premiums collected in the low hundreds of millions. The program has worked as intended for small and mid-sized operations.

DMC indemnity payments are subject to federal sequestration under the Balanced Budget and Emergency Deficit Control Act. The reduction has ranged from 6.2 percent in 2019 to 5.7 percent in the 2021 through 2024 program years. All payment figures cited in this article are the amounts calculated by the program formula, before the sequestration reduction was applied. The amount a producer actually received was the calculated amount minus the sequestration percentage in effect for that year. For example, a calculated payment of $10,000 in 2023 arrived as approximately $9,430 after the 5.7 percent reduction.

Three structural features of the formula are points of active discussion among industry participants regarding how the program has aged.

The first is the production threshold. The 5 million pound Tier I ceiling was raised to 6 million pounds under the One Big Beautiful Bill Act. That is roughly 280 cows producing 21,000 pounds per year. Average herd size has continued to increase in Wisconsin and across the country. More U.S. production sits in Tier II every year.

The second is the income side. The DMC formula uses the NASS All-Milk Price, a gross figure collected before hauling, cooperative dues, marketing assessments, and promotion deductions. The AMS Mailbox Price, which is closer to what producers net on their check, has run $0.75 to $1.00 per cwt below the All-Milk Price in normal years, averaging approximately $0.90 per cwt over the 2019 through 2024 program era. In 2020, the gap widened to as much as $2.22 per cwt in October during the most heavily depooled months. The basis between formula price and mailbox price is structural, and the program does not capture it.

The third is the cost side, which we will discuss in the next question.

How has the dairy landscape evolved for some to say the program hasn’t kept up with the true cost of making milk?

The discussions among industry participants center on several characteristics of the feed cost calculation and the original construction of the formula.

The DMC feed cost uses three ingredients with statutory weights: 1.0728 bushels of corn per cwt of milk, 0.00735 tons of soybean meal per cwt, and 0.0137 tons of premium alfalfa hay per cwt. Converting to pounds gives 60.08 pounds of corn, 14.70 pounds of soybean meal, and 27.40 pounds of alfalfa hay on an as-fed basis. Total feed per hundredweight of milk works out to 102.18 pounds as-fed, or 90.34 pounds of dry matter at standard moisture conversions. The full mathematical breakdown is in the appendix.

Discussion Points

The corn and alfalfa prices the formula uses are commodity market prices. A dairy raising its own corn silage and high-moisture corn experiences fertilizer, seed, and machinery costs as real feed costs. None of that appears in the DMC calculation until the underlying commodity prices respond. The 2026 fertilizer cost increase that is already embedded in this year’s crop will be realized on farm but will work through to the DMC feed cost calculation slowly, if at all.

The price calculation only goes into the cost of raw ingredients. A modern total mixed ration is the result of processing those ingredients through grinding and mixing, and fortifying them with salt, vitamins, minerals, rumen-protected amino acids, and other additives to produce a feed that is digestible and balanced for the cow. The cost of converting raw ingredients into a feedable ration is real, has risen with general inflation, and the formula does not capture it.

The statutory ration implies 90.34 pounds of dry matter per hundredweight of milk, with the full conversion shown in the appendix. That figure is high relative to what a modern high-producing cow eats. Lactating Holsteins consume roughly 52 to 60 pounds of dry matter per day, which at a typical production of 80 to 95 pounds of milk per day works out to about 55 to 65 pounds of dry matter per cwt of milk for the milking cow alone. On a whole-farm basis, once dry cows, replacement heifers, and calves are fed, total dry matter per cwt of milk produced is higher, commonly in the range of 90 to 110 pounds, depending on replacement rate and herd structure. The statutory ration sits between these two reference frames, so whether it looks generous or lean depends on which frame is applied. This is one reason the relationship between the formula and on-farm feed cost resists a single characterization.

A separate point follows from this. When analysts test more representative rations by substituting corn silage and other home-grown feeds for the premium alfalfa and commodity inputs in the statutory formula, the calculated ration cost generally comes out lower, because those feeds are cheaper per unit of nutrition. This is a statement about the calculated cost of the DMC ration specifically, not about whole-farm feed expense. A more representative DMC ration would tend to calculate a lower feed cost, which would raise the calculated margin and reduce program payments rather than increase them.

The broader observation: policy is static and the market is dynamic

This is bigger than any single feed-side observation. Policy is created at a point in time with a set of conditions and assumptions about how the industry operates. The market is dynamic. As time passes, the policy and the market drift apart. The DMC framework was constructed around the conditions of the mid-2010s. If the goal is for the program to function the way it did at the point of creation, adjustment mechanisms or policy changes are needed to keep the policy aligned with the market.

Cost of production data is illustrative of this drift. The total cost of production in Wisconsin averaged approximately $20.46 per cwt from 2016 to 2020, with feed costs averaging $9.61 per cwt and non-feed costs averaging $10.85 (USDA ERS). By 2024, the total cost was approximately $24.39 per cwt. Feed costs were $11.20, up $1.59 per cwt over the period. Non-feed costs were $13.19, up $2.34 per cwt. Feed costs ebb and flow with grain and forage markets. Non-feed costs have moved largely in one direction over the program era. Labor, energy, repairs, hauling, supplies, veterinary, interest, and insurance have all moved with general inflation. The DMC program does not have built-in mechanisms to adjust for drifts like these.

What market conditions favor the program, and which ones create a hindrance for those enrolled?

The answer depends on where volatility sits. Looking at monthly margin changes from 2019 through 2024, roughly three-quarters of the month-to-month variation comes from the milk price side and the remainder from feed costs. The program has been more responsive to milk price compression than to feed cost spikes.

The program responds well to conditions where milk price weakness is sustained, broad-based, and not offset by feed cost relief. Calendar year 2023 is the clearest example. The annual average margin was $6.70 per cwt. Eleven of twelve months triggered at $9.50. Two months breached the $4.00 catastrophic threshold for the first time in program history. Producers enrolled at $9.50 collected substantial indemnities.

The duration of payment periods

DMC payments, when they occur, tend to cluster in consecutive months rather than as isolated single-month events. The 2021 and 2023 payment cycles each ran nine or more consecutive months below the $9.50 threshold. The prolonged nature of payment periods reflects the underlying dynamics of dairy market downturns. Milk price weakness and feed cost pressure typically build over a number of months and resolve over a number of months. Producers who enroll receive payments not as single-event relief but as a stream of monthly payments that helps cover an extended period of margin compression.

Where the program is less responsive

When corn or alfalfa prices spike but milk prices hold, the formula captures part of the move, but the threshold structure means modest moves above the coverage level produce no payment. The 2021 and early 2022 period showed this. Feed costs were elevated, but milk prices kept pace through most of the run, so the formula margin compressed less than producers’ on-farm financials reflected.

Geography, milk class utilization, and producer basis

Milk class utilization varies by region, creating real differences in the producer basis relative to the formula price. The Upper Midwest is dominated by Class III milk going to cheese plants. The Southeast and parts of the West run heavy Class I utilization. When weakness is concentrated in cheese and butter markets, producers in cheese-heavy regions experience greater compression in their actual mailbox checks than what the national All-Milk Price registers. Two producers with identical DMC enrollment can experience meaningfully different margin compression in the same month because their mailbox prices reflect different class exposures, cooperative deductions, and regional hauling costs. The DMC payment is the same per cwt. The actual margin distress is not.

Processing investment and the changing component value picture

Approximately $12 billion of new dairy processing capacity is being built or has recently come online across the United States, with substantial concentration in the Upper Midwest and the central plains. The new capacity is weighted toward processing cheese, whey protein, and milk protein ingredients rather than fluid milk or commodity powder. As that capacity comes online, it changes the composition of milk demand in the regions where it lands. Producers near the new capacity could see component premiums and basis relationships that look different from historical patterns. The DMC formula uses national average prices and a fixed feed ration; it does not capture regional component basis shifts. The producer-basis question becomes increasingly important to monitor as the processing landscape continues to change.

How can producers make the most of this program and other risk management options, given the forecasts for the remainder of 2026?

The risk management landscape for dairy producers in 2026 includes DMC and several other federal and private instruments. The starting point for any individual producer is understanding what risks they are actually exposed to.

Know what’s in your milk check

Producers can talk to their processor to learn what their milk is being made into, where the resulting products are being sold, and what end markets are driving those product prices. From that information, a producer can identify the biggest sources of volatility in their own milk check and, from that, which risk management is most useful for their operation. A producer whose milk goes primarily into cheese for domestic retail has a different volatility profile than a producer whose milk goes into protein ingredients for export. The same DMC enrollment can have very different practical value depending on what is actually moving the producer’s revenue.

DMC enrollment patterns

DMC has been heavily used at the highest Tier 1 coverage level. Approximately 97 percent of Tier I operations select the $9.50 coverage level (USDA FSA reported 96.6 percent of operations in 2022 and 98.2 percent in 2023). National enrollment has ranged from approximately 13,500 dairy operations in 2020 to over 23,000 in 2019. The historical program payments have run substantially above premiums collected, which is consistent with the program’s design as a subsidized safety net for small and mid-sized operations rather than a self-funded insurance product.

Other federal risk management instruments

Dairy Revenue Protection (DRP) is administered by the USDA Risk Management Agency and provides quarterly revenue insurance based on Class III or Class IV milk prices, with a producer-selected mix between the two. DRP is purchased in advance of a quarter and pays based on realized prices relative to the producer’s selected coverage. Livestock Gross Margin Insurance for Dairy (LGM-Dairy) combines feed cost and milk price into a single margin instrument and can cover up to ten months ahead. LGM-Dairy has historically had lower participation than DMC or DRP, though endorsement counts have grown substantially in recent years, from roughly 800 in 2019 to over 5,000 in 2025. The 2018 Farm Bill removed the prior prohibition on participating in DMC and these insurance products at the same time. Producers can now hold DMC alongside DRP, LGM-Dairy, or both, typically stacking the insurance products on production not covered by DMC.

Policy Modifications Under Discussion

The discussions reviewed in this article include several potential modifications to the program. They are presented here as options under discussion among economists, industry participants, and producer organizations, not as recommendations. The options differ in complexity and mechanics, and each carries a tradeoff between program simplicity and farm-level specificity. They are presented in a rough order of the scope of modification each would require.

The current program design uses national average prices on both the income and feed sides, which means it does not adjust for region-specific cost structures in hauling, cooperative dues, marketing assessments, regional feed costs, or labor. Whether this is a gap to address or a deliberate design choice is itself part of the discussion. Any modification toward more regionally specific data would shift the distribution of program benefits across regions, and each option below carries that distributional implication.

Two of the options are similar in scope and both involve additions to the existing feed cost calculation: adding a coefficient for transformation and fortification, and adding an inflation adjustment for non-feed costs.

One option discussed is adding a coefficient to the feed cost calculation for transformation and fortification. Proponents note that a national average for salt, mineral, milling, and similar costs could be applied as a fixed multiplier or additive factor, that the data exist in commercial feed price reports and published cost surveys, and that the change is mechanically simple. Critics note that it adds cost components to a formula deliberately built on three commodity prices for simplicity and transparency, that a single national coefficient would not match any individual operation, and that it raises the question of where to stop, since nearly any input cost could be argued for inclusion. Adding costs to the feed side raises the calculated feed cost, lowers the margin, and increases both program payments and program cost.

Another option discussed is adding an inflation adjustment mechanism for non-feed costs. Proponents note that the program was constructed at a point in time with implicit assumptions about the non-feed cost environment, and that a standardized adjustment indexing a non-feed cost component to a published inflation measure, possibly calibrated to a base period from the time the program was created, would keep the policy aligned with the market without legislative action each farm bill cycle. Critics raise several objections. DMC measures income over feed cost, not income over total cost, so building in a non-feed cost adjustment changes what the program is designed to measure. The mechanism would raise payments structurally over time, increasing federal cost regardless of market conditions, and the choice of index and base year would be contentious. Direct inflation-indexed mechanisms are also uncommon in USDA commodity programs. The closest precedent, the Price Loss Coverage reference price escalator established in the 2018 Farm Bill, adjusts effective reference prices based on a share of recent market prices subject to a cap, and has been noted as slow to keep pace with cost inflation.

Two further options are similar in scope to each other and require a greater scope of modification than the first pair: regional basis adjustments to the formula, and substituting the mailbox price for the all-milk price.

One option discussed is building regional basis adjustments into the formula. Proponents note that this would address some of the geographic basis issues raised in question 3. The objections are practical and distributional. It requires choices about how to define regions, how to source regional price data, and how to handle producers near regional boundaries, and it would shift program benefits toward higher-cost regions and away from lower-cost ones, which some characterize as the program subsidizing less efficient production. The current use of national average prices can be read as a deliberate choice not to compensate for region-specific cost differences rather than an oversight.

Another option discussed is substituting the AMS Mailbox Price for the NASS All-Milk Price in the formula. Proponents note that AMS already publishes the mailbox price on a regular schedule, that the data are available at the national level, and that because revenue exposure in dairy is structurally larger than feed cost exposure on a percentage-of-cost basis, adjusting the income variable toward what producers actually receive has greater effect per unit of policy effort than equivalent changes to the feed side. Critics note that the mailbox price is reported with less geographic completeness than the all-milk price, with some states suppressed or not separately reported; that because it sits below the all-milk price, substituting it would lower the calculated margin, trigger payments more often, and raise program cost; and that because mailbox deductions for hauling, dues, and assessments vary by region, the change would compensate producers in higher-cost-of-marketing regions more than the current formula does.

A further option discussed is updating the feed ration to more closely reflect modern dairy rations. The choices it requires are contested: which feeds to include, what proportions to apply, what regional or production-system variation to allow, and how or whether to handle home-grown versus purchased feed. Selection of feedstuffs also engages regional production interests, since regions feed substantially different rations. The point noted in question 2 bears directly on this option. Substituting corn silage and other home-grown feeds into the statutory ration generally calculates a lower DMC ration cost, because those feeds are cheaper per unit of nutrition. A lower calculated feed cost raises the margin and reduces program payments. A more representative DMC ration would therefore not necessarily increase payments to producers and could reduce them. Updating the ration could also commit the program to periodic revision as feeding practices continue to change.

A final option discussed does not modify the formula at all. Exempting DMC indemnity payments from federal sequestration would increase producer payments by the applicable sequestration percentage, recently 5.7 percent. At the national level, sequestration withheld on the order of $190 million from producers across the 2019 through 2024 program era. DMC is funded through the Commodity Credit Corporation, which is subject to sequestration, while crop insurance programs including DRP and LGM-Dairy are largely exempt under existing statute. The objection is procedural rather than technical. Sequestration applies broadly across CCC-funded programs, exempting one program invites the same request from others, and any exemption must be reconciled with federal budget rules that generally require offsets.