Dairy Revenue Protection (DRP) provides protection against unexpected declines in quarterly gross milk sale revenue caused by price fluctuations or falloffs in milk production (regional/state per cow quarterly averages). The risk management program is flexible allowing small to large producers to set coverage based on the specific needs of their operation.
DRP, an area-based product, fills a gap in existing risk coverage for dairy producers by addressing milk basis and variability in milk production by region. DRP is not linked to feed prices and insures gross milk revenue, providing an opportunity for dairy owners and managers to lock in a revenue floor. USDA premium subsidies apply from 44% to 55%, with coverage levels of 80% to 95%.
A quarterly endorsement gives you flexibility in your guarantees without having to change the policy. You can purchase up to five quarters in the future on any closing date. The class pricing option uses a combination of Class III and Class IV milk prices. It’s calculated based on the quarterly average of the CME milk futures prices.
The component pricing option uses a combination of the component milk prices for butterfat, protein, other solids and nonfat solids. Producer selects the butterfat and protein test percentages to best reflect the value of the milk being covered.
Dairy Revenue Protection allows producers to establish a revenue floor, permitting them to lock in a milk price at or above break-even cost when the market is up. When the market is below break-even cost, producers can mitigate the risk of prices falling further while retaining the opportunity to take advantage of upward price movement.
When compared to hedging products, DRP insurance is less expensive due to the USDA-RMA subsidy. Like other insurance products, it has a known milk price and premium, fixed at the time of purchase. No additional time is required to research the market and seek out a hedge price that fits your operation. There are no margin calls or commodity accounts to maintain and producers receive the benefit of upward price movements in the marketplace. Additionally, producers determine the pricing mechanism up front based upon how their milk and milk components are sold.
DRP is available to any dairy producer in the U.S. at any time during the year. Contact a crop insurance agent in your area for more information.
You can establish a value between 1.00 and 1.50, in .05 increments. The protection factor impacts the premium and indemnity and is used to calculate the policy protection.
Available coverage levels: 80%, 85%, 90%, 95% of revenue guarantee.
Farm Credit customers with a signed DRP insurance application and user agreement have access to our industry leading DRP Analyzer. The DRP Analyzer provides daily premium rates and coverage prices to help you make informed Dairy Revenue Protection purchases.
You can utilize other livestock insurance policies like Livestock Gross Margin for dairy, for all or part of the same period, as long as the policies do not cover the same milk.
