August 27, 2018

Dairy R-P: A New Risk Management Tool

 |  By: Robin Schmahl

The increase of Class III futures late last week has created some excitement with futures prices gaining in two days what contracts lost over the previous two weeks. Milk checks for September milk now have a good chance of being around $1.00 per cwt more than August will be and will help pay some of the bills. What happens from here on out is anyone’s guess, but increasing seasonal demand should provide some support under the market. The big question is still the pace of exports. However, that does not seem to have as great of an impact as earlier feared, but only time will tell.

The other item that has been causing quite some interest and will continue for some time is Dairy Revenue Protection insurance (Dairy R-P). Insurance companies are scrambling to get everything in line for insurance agents to be able to quote and write policies for those who choose to insure their milk revenue. Crop insurance agents are chomping at the bit as they see an opportunity to increase their book of business. Dairy farmers are showing interest in the program because it protects milk revenue and not an income over feed price. As a result, there is a significant amount of information being passed out with some of it either not confirmed or untrue.

First of all, licensed crop insurance agents need to attend a three-hour training session by an approved insurance provider in order to be able to write. Many of these training session will be taking place over the next few weeks. So far October 9th is set for the beginning of writing of policies. Producers will then have until December 15th to choose amounts of milk that they want insured or they will want to have revenue protection on beginning with the first quarter 2019 with a total of five quarters out. Beginning December 16th, producers will have the ability to establish revenue protection beginning in the second quarter 2019. Producers can sign up anytime before sales closing date before protection can be established for the next quarter and up to five quarters out. Do not feel pressured into signing up with a crop insurance agent right away unless you feel confident.

There will be two choices for dairy producers to choose for revenue protection. One choice is a combination of Class III and Class IV prices and the other is based on milk components consisting of butterfat, protein, and other solids. These can be combined in any quarter that is selected, but each needs to be done on a portion of total milk production for the quarter and milk production covered cannot overlap.

There will be much more information coming out about Dairy R-P, and some of it could be overwhelming. One thing producers must keep in mind is that they will not miss out if they do not sign up to be in position to enroll in Dairy R-P by October 9th . Signing up to get into position and approved for establishing a policy(s) can be done at any time. Do not be pressured by insurance agents that tell you there is a deadline to sign up by October 9th. A producers has until December 15 to sign up if you want to establish a policy for the first quarter of 2019.

As a dairy producer, you also need to work with an agent that understands the policy and understands dairy. This is a risk management tool and needs to be treated as such. It needs to fit in with cost of production and goals of the farm. You do not want to make uninformed decisions that will cost you money without providing the proper protection.