DRP program allows producers to set price floor
By Jay Stone
For years, dairies have wrestled with low commodity prices and found little relief in the Margin Protection Program included in the 2014 farm bill.
Seeking to crack the code on a dairy insurance plan that works, American Farm Bureau Federation (AFBF) and American Farm Bureau Insurance Services (AFBIS) developed Dairy Revenue Protection (DRP), designed to insure against unexpected declines in quarterly revenue from milk sales. The plan was made public by the Federal Crop Insurance Corporation in August 2018 and insurance agents began selling DRP policies in October 2018.
On March 12 at Georgia Farm Bureau, AFBIS Training & Marketing Director Eric Swanson led a tutorial about DRP for a gathering of Georgia dairymen.
“Dairy Revenue Protection in its simplest form, is an opportunity for you to set a floor on your milk price,” Swanson said.
Swanson noted that dairy stakeholders indicated a desire for a plan that is tied to how milk is sold. With that in mind, with heavy input from AFBF Chief Economist Dr. John Newton, AFBF and AFBIS, created a program that offers two pricing options: A class pricing option that provides revenue protection based on prices for Class III and Class IV milk, and a component pricing option based on milk component prices for butterfat, protein and other solids. The crop year begins on July 1 and ends on June 30. Producers can purchase Quarterly Coverage Endorsements daily based on three-month average milk prices as published by the Risk Management Agency (RMA) for up to five quarters out.
Milk producers can select coverage levels ranging from 70 percent to 95 percent. The federal government provides premium subsidies ranging from 59 percent at the 70-percent coverage level to 44 percent at the 95-percent coverage level.
“You’re going to pay the difference,” Swanson said. “As your coverage level goes up, as you’re shifting risk to the insurance company and the federal program, your subsidy is going to go down.”
Under the class pricing option, producers can choose how much of their coverage is attached to Class III milk prices and how much is attached to Class IV milk prices.
Under the component pricing option, producers can choose coverage options based on the butterfat and protein content of their milk. Coverage for butterfat content can be set between 3.5 and 5 pounds per 100 pounds of milk. Coverage for protein content can be set between 3 and 4 pounds per 100 pounds of milk. For those two categories, the producer can select amounts in .05 increments. Coverage for other solids in the milk is set at 5.7 pounds per 100 pounds of milk.
DRP also has a feature, called the protection factor, that allows producers to increase their indemnity up to 150 percent. Producers can elect a protection factor between 1.00 and 1.50 in .05 increments.
DRP policies are sold for quarterly coverage and producers may elect to purchase coverage for as many as five quarters. Through June 15, coverage is available for the quarters July – Sept. 2019, Oct.-Dec. 2019, Jan.-March 2020, April-June 2020 and July-Sept. 2020. Policies may be purchased on any business day except when USDA publishes the Cold Storage, Dairy Products, and Milk Production reports. There is no up-front money required; producers will be billed for the coverage at the end of the quarter.
Under DRP, in the event of a possible loss the insured must submit milk marketing records corresponding to the quarter insured from the insured dairy operation’s milk cooperative or milk handler that provides records of the actual milk deliveries and, if applicable, the component levels in the milk sold. The milk marketing records shall show the name, address, Grade A identifier assigned by a duly constituted regulatory agency, payroll number or similar identifier of the producer, the daily and total pounds, and the month and dates such milk was received from that produce, and if the component price option was elected, the total pounds of butterfat and protein contained in the producer’s milk.
For more information or to get an online quote, visit www.dairyrp.com.
DRP Sales dates Quarters Available for Coverage
March 16 – June 15, 2019 July-Sept. 2019, Oct.-Dec. 2019, Jan. – Mar. 2020, April-June 2020, July-Sept. 2020
June 16 – 30, 2019 Oct.-Dec. 2019, Jan. – March 2020, April-June 2020, July-Sept. 2020 *
July 1 – Sept. 15, 2019, Oct.-Dec. 2019, Jan.-March 2020, April-June 2020, July-Sept. 2020, Oct.-Dec. 2020
Sept. 16 – Dec. 16, 2019 Jan.-March 2020, April-June 2020, July-Sept. 2020, Oct.-Dec., 2020, Jan.-March 2021
Dec. 16, 2019 – March 15, 2020 April-June 2020, July-Sept. 2020, Oct.-Dec. 2020, Jan.-March 2021, April-June 2021
* - 5th quarter is not available June 16-30 to limit coverage period to two reinsurance years.