American Farm Bureau Federation plans to unveil a new insurance product this summer focused on protecting revenue from milk sales, as opposed to the margin between milk prices and feed costs in other risk-management tools.
Its Dairy Revenue Protection insurance, developed in cooperation with American Farm Bureau Insurance Services, is based on traditional crop insurance models and has gained the approval of USDA’s Federal Crop Insurance Corporation.
It would offer revenue guarantees, with options to cover the value of a farmer’s milk and his production.
Other programs, such as the Margin Protection Program and Livestock Gross Margin program, are based on the margin between the average cost of feed and the average price of milk.
Dairy-RP “fills the gap in risk coverage. Everything else was margin-based; there was nothing that looked at the value of milk,” John Newton, AFBF director of market intelligence, said.
Margin protection has proved ineffective in recent years when milk prices have bottomed out. Because feed costs also decreased substantially, the margin between milk prices and feed costs was not low enough to adequately trigger indemnity payments despite dire circumstances on the farms and about $95.7 million in premiums paid in 2015 and 2016.
“Farmers didn’t get a lot of support, and this could go a long way in fixing that,” Newton said.
The concept is simple. Dairy-RP would protect dairy farmers against quarterly revenue losses caused by declines in the value of milk or milk components or unexpected losses in milk production.
Producers would have four decisions to make in choosing coverage:
• The value of milk protected.
• The amount of milk to cover.
• The level of revenue coverage.
• Which quarterly contracts they want to purchase.
Producers would have two options based on the value of milk. They could choose an average milk price based on Class III and IV milk prices. The other option would be based on milk components, milkfat and protein.
The producer would then choose how much milk production to cover during the quarter.
His elected volume of milk would be indexed using average expected state milk yield per cow. The expected revenue during the quarter would be the product of the value of milk and the amount of covered milk.
The producer would then select a level of revenue coverage to guarantee.
Once the monthly milk and component prices are announced for the quarter and USDA’s milk production report identifies actual average per-cow production per state, the state-indexed actual average revenue will be compared against the revenue guarantee.
If the actual revenue is below the guarantee, producers will be paid an indemnity based on the difference.
“People seem pretty excited at this point,” Newton said.
Like other crop insurance policies, USDA would provide premium discounts to purchase Dairy-RP and the discount would increase as a producer’s elected deductible increased.
More policy details, such as coverage rates and premium estimates, will be released this summer, he said.
Producers in Idaho will be getting more details in early June at meetings with Newton planned for Twin Falls, Boise and Pocatello sponsored by Idaho Farm Bureau and Idaho Dairymen’s Association.
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