USDA Risk Management Agency on Wednesday announced a new insurance plan for dairy producers that insures against unexpected declines in quarterly milk sales.
Sign-ups for the new Dairy Revenue Protection plan (Dairy-RP) begins Oct. 9, with the first available coverage starting the first quarter of 2019.
Dairy-RP was developed by American Farm Bureau Federation, American Farm Bureau Insurance Services and other collaborators and was approved by the Federal Crop Insurance Corp., John Newton, AFBF director of market intelligence told Capital Press in a recent interview.
The insurance plan is different from other USDA risk programs for dairy, which focus on income over the cost of feed and don’t directly manage revenue risk. It provides insurance for the difference between the final revenue guarantee selected by producers and actual milk revenue if prices fall.
It will function similar to crop revenue protection policies in that the revenue guarantee would be based on futures prices, expected production and market-implied risks, Newton said.
A dairy producer can decide the value of milk protected either based on a combination of Class III and Class IV milk prices or component milk prices for butterfat, protein and other solids.
He would choose the amount of milk production to cover, the level of revenue coverage to insure (from 70 percent to 95 percent) and which quarterly contracts he wants to cover.
The expected revenue is based on futures prices for milk and dairy commodities and the amount of covered milk production elected by the dairy producer. The covered milk production is indexed to the state or region where the dairy producer is located.
The actual ending milk or component values are based on the monthly average prices announced by USDA Agricultural Marketing Service. Milk yields are based on USDA National Agricultural Statistics Service monthly milk production report.
Like other crop insurance products, a premium subsidy is available and is based on the coverage level selected. The subsidy would range from 59 percent of the premium for 70 percent revenue coverage to 44 percent for 95 percent revenue coverage.
On Wednesday, Newton said the final plan is the same as the product developed by American Farm Bureau Federation and Insurance Services.
Preliminary analyses indicate a policy covering 90 percent of milk revenue could cost 5 cents to 40 cents per hundredweight of milk, depending on the quarter of the year covered and other policy parameters, he said in an earlier summary of Dairy-RP.
Participating producers are not precluded from participation in the USDA’s Margin Protection Plan. They are also not precluded from participating in USDA’s Livestock Gross Margin for Dairy program, but only on policy (either Dairy-RP or LGM-Dairy) can have endorsements in effect for the quarterly insurance period.
Dairy-RP only provides revenue insurance and does not insure against the death, other loss or destruction of dairy cattle or any other loss or damage.
Additional information on Dairy-RP is available from USDA here and from AFBF here.
Source: Capital Press