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Is Dairy Revenue Protection the Right fit for Your Dairy Operation?

Date: 
Author: 
Michelle Sell
Educational Opportunities: 
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Home > Education & Events > April 2019 > Is Dairy Revenue Protection the Right fit for Your Dairy Operation?
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Is Dairy Revenue Protection (DRP) a good fit for your dairy operation? Available since October 2018, DRP provides coverage against declines in quarterly revenue from milk sales. Many producers use DRP as a helpful addition to their risk management toolbox.  Understanding the program’s key aspects will help dairy producers make coverage decisions that best align with their operational goals.    
  • The value of the milk protected can either be based on class pricing or component pricing. 
    • If class pricing is selected the coverage may be based on 100% Class III, 100% Class IV or a weighted average of the two. 
    • If component pricing is selected the coverage is based on the producer’s chosen butterfat and protein levels.  In the event of a loss, the average actual component levels for the quarter must be at least 90% of levels elected by the producer.
  • The amount of milk protected must be decided for each quarter.  In the event of a loss, the farm must produce at least 85% of the total amount of milk protected for that quarter. 
  • Coverage levels range from 70-95% in 5% increments. The coverage level dictates the subsidy level for the coverage which, in turn, helps determine the premium. The coverage level is also a factor in calculating the revenue guarantee. e
  • Coverage is based on quarterly increments, 1st quarter, 2nd quarter, etc. up to five quarters out. The producer must choose which quarter(s) to cover.
  • The protection factor ranges from 1.0-1.5 in 0.05 increments. In the event of a loss, if a protection factor of greater than 1.0 is selected, it increases the amount of the loss by that factor. The protection factor only comes into play if there is a loss and does not increase the revenue guarantee. 
  • A unique aspect of the DRP program is the yield adjustment factor. This is based on state level milk production per cow for the quarter.  The actual number will be divided by the expected number to determine this factor which will move actual milk revenue up or down. If actual milk production for the quarter is less than the expected number this will decrease actual revenue and thus increase any indemnities.  If actual milk production for the quarter is more than the expected number this will increase actual revenue and in turn decrease any indemnities.
  • DRP is available for sale daily Monday through Friday with certain exceptions.  Sales start at 4 p.m. and end at 9 a.m. the following business day.
  • Livestock Gross Margin (LGM) dairy coverage and DRP coverage may not be used within the same quarter. However, participation in both DRP and the FSA’s new Dairy Margin Coverage program is allowed. 
Even when you understand the basics, deciding if a program is right for you can still seem overwhelming. Take a look at this example to see the revenue and indemnity calculations for DRP. Always make sure you are taking advantage of opportunities for better managment of your dairy. This is a loss example for a producer who endorsed milk for first quarter 2019 on the first day (October 9th, 2018).  If these projections hold true, this producer would be paid $0.85 per CWT of milk endorsed. 

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