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Dairy Revenue Protection as a strategy to stabilize dairy revenue

by | Jun 7, 2019

Dairy Margin Coverage

Dairy Revenue Protection (RP) is a new tool available to dairy producers which can be used in conjunction with the Dairy Margin Coverage (DMC) program.  RP provides protection against an unexpected decline in revenue (price and/or yield) on the milk produced from dairy cows on a quarterly basis. There are five choices a farmer must decide on when enrolling in Dairy RP: 1) method to value milk (class or component), 2) Amount of quarterly milk to cover, 3) Coverage level for revenue guarantee, 4) Protection Factor, and 5) which quarterly contracts to purchase.

Pricing Methods

There are two different pricing methods for Dairy RP, The first one is a combination of Class III and Class IV prices.  One can choose any blend or mix from 100% Class III to 100% Class IV.  The other option is component pricing which requires the farmer to select different expected butterfat and protein production levels.  A dairy farmer can choose any amount of expected quarterly milk production to cover.  There will be validation checks to make sure a minimum of 85% of total milk production and 90% of components covered are actually produced.  The coverage levels range from 70 %to 95%. Dairy farmers can also elect a protection factor level from 1.0 to 1.5 in 0.05 increments.  Quarterly coverage can be purchased up to five quarters into the future.  Each of these choices affect the overall premium paid by the producer with premiums determined on a daily basis. 

Purchasing protection

Dairy RP  contracts can be purchased through approved crop insurance agents.  Rice Dairy Risk Services (https://quotes.ricedairyrs.com/) also provides daily quote updates in addition to a series of tools to study the ways Dairy RP may affect dairy farm revenue.

For more information about Dairy RP please refer to https://www.rma.usda.gov/en/News-Room/Frequently-Asked-Questions/Dairy-Revenue-Protection

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