Dairy Revenue Protection

How does Dairy Revenue Protection work?

Dairy Revenue Protection (Dairy RP) is an area based revenue product designed to insure against unexpected declines in the quarterly revenue from milk sales relative to a guaranteed coverage level.

Dairy producers may choose from a variety of milk pricing options that align with Federal Milk Marketing Order end-product pricing formulas and the manufacturing value of Class III and Class IV milk.

Class Pricing Option: Under the Class Pricing Option, Dairy RP provides revenue protection based on an index of state-level revenue constructed with Class III and Class IV milk prices. The producer can choose the percent of Class III and Class IV used to establish their Price Guarantee per hundredweight to tailor to their operation.

Component Pricing Option:  The Component Pricing Option is revenue protection based on milk component production, including butterfat, protein, and other solids. The producer can select the desired butterfat percentage and protein percentage. The other solids percentage is fixed at 5.7%.

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 pooled production region where the dairy producer is located.

Policies correspond to the quarters of the calendar year, and producers may purchase policies for up to 5 nearby quarters.

Producers may cover up to 95 percent of their expected quarterly revenue. At the end of the insurance period, if the actual milk revenue is below the final revenue guarantee, the producer may receive an indemnity payment for the difference between the final revenue guarantee and the actual milk revenue multiplied times the share and protection factor.