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David Sparks Ph.d Dairy-revenue protection
by David Sparks Ph.d, click here for bio

Program: Idaho Ag Today
Date: October 11, 2018

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The American Farm Bureau Federation is teaming up with Farm Bureau Insurance and Dairymen for a new risk-management insurance safety net for dairy farmers.


The Idaho Farm Bureau is holding informational meetings across Idaho this week to unveil the safety net insurance program that's included in the 2018 Farm Bill.


 "These are a usable and realistic solution to the extream volatility of the dairy market, " said Zak Miller of the Idaho Farm Bureau. "Now that the product has been approved by the US Department of Agriculture it is signing-up time and we want to start signing farmers."


Dairy Revenue Protection is an insurance plan allowing farmers to purchase risk management protection against quarterly milk market declines and unexpected declines in milk prices, milk production, or both.


"This is exciting because Farm Bureau has been working on this safety net for quite some time," said  Miller. It is a risk management tool that just about anyone can afford."


Dairy Revenue Protection insurance gives farmers the opportunity to manage risks by focusing on their profits from milk sales. The program has the endorsement of the USDA’s Federal Crop Insurance Corporation.


"This is customizable, whether you're a high-fluid Holstein producer or high-solid jersey producer you can get insurance protection for your herd, whatever your needs are and prices you can afford. Now is the time to start looking at a policy and you can sign up by the quarter, it's flexible and easy," said Miller.


By design, Dairy Revenue Protection provides different levels of insurance coverage based on the value of the farmer’s milk. One option uses milk futures prices while the other option is based on the value of milk components, things like milkfat, whey protein, and other milk solids. A majority of dairy farmers selling milk in the US today are paid just on the amount of milk fat and protein in their milk.


“I think this a timely and needed product for the dairy industry, we’ve seen volatility in the feed side and market side and the market side of dairy production. It's nice to see a product coming on that finally benefits dairymen,” added Miller.


Dairy-RP coverage works just like the area-based crop revenue-protection insurance policies. Crop coverage offers revenue guarantees based on three things: futures prices expected production and market-implied risk. The program has the full support of the American Farm Bureau.


“Dairy-RP allows farmers to pick a value of milk based on a component value or a mix of class-three or class-four milk. Then the farmer picks how much milk they want to cover, a dairy percentage, and that becomes a revenue guarantee for the farmer on the policy,” said John Newton, American Farm Bureau Economist who attended the informational meetings in Pocatello, Twin Falls, and Boise last summer.


Newton says the Farm Bureau started contacting Dairy farmers two years ago to see what kind of fixes they needed in the farm safety net in the Farm Bill. Newton points to the success of crop programs as an example of why dairymen need the same type of protection.


“In 2016, with declining crop prices, more than $2.2 billion in insurance indemnities were paid to corn, cotton, rice, soybean and wheat farmers. Dairy-RP would have provided similar protection in 2015 and 2016 when those milk prices fell by nearly 50 percent and the total US farm value of milk fell by nearly $15 billion,” said Newton.


Miller says that under the Dairy-RP program a big selling point is that a farmer has only four decisions to make when working on his protection policy which include: the value of milk protected, the amount of milk production to cover; the level of coverage from 70 to 90-percent of the revenue guarantee; and which quarterly contracts a farmer wishes to purchase.


Like other crop insurance policies, USDA would provide a premium discount to purchase Dairy-revenue protection and the discount would increase as the farmer’s elected deductible increased, for instance, 70-percent coverage has a higher premium discount than 90 percent coverage. Preliminary economic studies show that a Dairy-RP policy, covering 90 percent of the milk revenue, could cost 5 to 40 cents per hundredweight, depending on the quarter of the year covered and other policy parameters.

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