Sales by coverage levels
Under Dairy-RP, dairy producers can select coverage at 70 to 95 percent (in 5 percent increments) of expected quarterly milk revenue (production times price). During the week of Feb. 4-10, U.S. dairy producers protected revenue on another 1.9 billion pounds of milk under Dairy-RP, bringing the total milk volume covered since the program was launched last fall to 15.3 billion pounds.
Based on data as of Feb. 11, the revenue on about 13.7 billion pounds of milk was covered at the 95 percent level. That represents about 90 percent of all milk covered under Dairy-RP since the program was launched on Oct. 9, 2018.
Another 1.6 billion pounds of milk was covered at the 90 percent level, or about 10 percent of all milk covered under Dairy-RP. Just 3.2 million pounds (0.02 percent of the total) was covered at the 85 percent level.
The USDA RMA provides premium subsidies based on the coverage percentage selected. Producers who select 90 to 95 percent coverage are eligible for premium subsidies of 44 percent. The percentage of premium subsidy rises as the producer selects a higher deductible.
The latest report shows 2,036 dairy producers had filed Dairy-RP applications in 35 states. Of the applications, 1,101 have purchased 3,312 quarterly endorsements. Total premium costs on purchased endorsements were about $51.2 million, with USDA RMA subsidies covering about $21.2 million of that.
Producers seeking Dairy-RP coverage can purchase endorsements through authorized crop insurance agents, up to five quarters into the future. Dairy-RP quarterly endorsements are available for sale until about the 15th of the month preceding the quarter to be covered. For example, first-quarter 2019 (January-March 2019) coverage closed on Dec. 15, 2018.
Endorsements are now available through the first two quarters of 2020. Near term, Dairy-RP sales covering milk revenue for the second quarter (April-June) of 2019 close on March 15; sales covering milk revenue for the third quarter (July-September) of 2019 close on June 15.
It will be the end of April when dairy producers who purchased coverage for the first quarter of 2019 find out if they’ll be eligible to receive indemnity payments for that period, according to Kent Horsager, president of Ag Hedge Desk, a commercial trading desk and agricultural consulting company that works with both producers and Dairy-RP insurance agents.
USDA RMA must first announce milk and component prices, along with quarterly milk production estimates, to determine a revenue baseline. Based on the USDA RMA timeline, milk class and component prices used in revenue settlements are announced 20 days after the quarter ends, or about April 20.
Approved insurance providers (AIPs) then have 10 days to notify their Dairy-RP clients if they are eligible for indemnity payments based on the coverage selected. Producers must then provide the AIPs with actual milk production figures for the quarter, and the AIPs then have 30 days to make indemnity payments.
So, based on that schedule, a dairy farmer who purchased Dairy-RP coverage for the first quarter of 2019, and was eligible to receive an indemnity payment, would see a check between May 30 and July 30, depending on how promptly the required documents have been completed.
The next deadline for Dairy-RP is the close of sales for second-quarter 2019 coverage, on March 15. So producers waiting to see if indemnity payments will be paid on first-quarter revenue will be too late to purchase coverage for April-June 2019. Current futures prices show nearby cheese prices are weak, but strengthen in the later half of the year.
Horsager urged producers to work with their insurance representatives to get the most “bang for their buck” when making coverage decisions.
“We recommend producers ask their agents to run that type of analysis with them so they can get the full picture before purchasing Dairy-RP. Don’t be afraid to shop around to find a firm that offers robust decision tools.” Horsager said.
Late-February sales dates limited
Dairy-RP policies are not available for sale on days of USDA dairy reports with a potential impact on markets, or days when Chicago Mercantile Exchange (CME) markets move up or down contract limits. Due to the high number of dairy market reports as USDA catches up after the partial government shutdown – and if another shutdown is averted – Dairy-RP will not be offered on the following dates: Feb. 18, Feb. 20, Feb. 22 and Feb. 28, according to Ron Mortensen with Dairy Gross Margin LLC.
Dairy-RP is designed to insure against unexpected declines in the quarterly revenue from milk sales relative to a guaranteed coverage level. 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.
Producers can also participate in Dairy-RP independent of all other dairy risk management programs.
More information is available on the RMA website.
- Progressive Dairyman
- Email Dave Natzke