Frequently Asked Questions About Dairy Revenue Protection02/06/2019
Dairy Revenue Protection (Dairy-RP) is a risk management tool that protects dairy farmers against quarterly revenue losses caused by declines in the value of milk or milk components, or unexpected declines in milk production. This is an area-based revenue insurance product backed by the Federal Crop Insurance Corporation and is indexed using the state-level milk prices.
To accurately capture the farm-level revenue risk, dairy farmers will determine how their milk is priced under the policy by selecting to use a classified milk price or a combination of the milk components in their milk (milkfat, protein, and other milk solids). Dairy-RP policies function like crop revenue protection policies in that the revenue guarantee would be based on futures prices, expected production and market-implied risk.
Dairy-RP is approved for sale in all counties in all 50 states.
Below are some of the frequently asked questions about Dairy Revenue Protection crop insurance. This is an abridged version of the FAQ on Dairy-RP found on the USDA RMA website.
What is Dairy Revenue Protection?
Dairy Revenue Protection (Dairy-RP) provides protection against an unexpected decline in revenue (yield and/or price) on the milk produced from dairy cows. In sum, the policy covers the difference between your final revenue guarantee and actual milk revenue during each quarter of the year.
How is the actual milk revenue calculated for class pricing option?
The actual value is determined by multiplying the actual class III and Class IV prices x the declared pricing elections x covered milk production x yield adjustment factor ÷ 100.
How is actual milk revenue calculated for component pricing option?
The actual value is determined by multiplying the actual butterfat, protein and other solids prices x the final component tests x covered milk production x yield adjustment factor ÷ 100.
Can I purchase an endorsement with different Approved Insurance Providers (AIP) in the same crop year?
No, quarterly coverage endorsement must be purchased with the same AIP within the same crop year. You may transfer the policy to another AIP at the beginning of a new crop year.
How do I buy Dairy-RP?
You must buy Dairy-RP insurance through an authorized crop insurance agent. You can fill out an application at any time. However, insurance does not attach until you buy a quarterly coverage endorsement. You may buy multiple quarterly coverage endorsements with one application. Your insurance coverage starts the first day of the quarter for which the quarterly coverage endorsement was purchased.
Can I buy Catastrophic Risk Protection Endorsement (CAT) coverage on Dairy-RP?
No. Dairy-RP does not have a CAT level of coverage.
How is final revenue guarantee calculated for class pricing option?
The final revenue guarantee is determined by multiplying the expected class III and Class IV prices x the declared pricing elections x covered milk production ÷ 100.
What is the Class Pricing Option?
The Class Pricing Option uses an insured’s election of a combination of Class III and Class IV milk prices as a basis for determining coverage and indemnities.
How do you calculate the final revenue guarantee for the class pricing option?
For the class price option, the final revenue guarantee is calculated as follows: ((expected class III price x declared class price weighting factor) + (expected class IV price x (1-declared class price weighting factor)) x covered milk production ÷ 100.
Can I insure both the component pricing option and the class pricing option at the same time?
Yes. You may choose either pricing option on separate quarterly coverage endorsement provided it is not covering the same milk.
As a beginning farmer or rancher, am I eligible for an additional subsidy under Dairy-RP?
Yes. The subsidy for qualifying beginning farmers or ranchers provides an additional 10 percent of premium subsidy. For more information on the beginning farmer and rancher program, go to the Risk Management Agency’s website.
Can I have different coverage levels and protection factors for each quarterly coverage endorsement purchased?
Yes, you may have different coverage levels and protection factors for every endorsement purchased. You can choose a protection factor between 1.00 and 1.5 in 0.05 increments.
Can multiple Quarterly Coverage Endorsements be purchased for the same quarterly insurance period?
Yes. There can be multiple Quarterly Coverage Endorsements in effect for the same quarter. The producer can elect different coverage levels and pricing methods for each Quarterly Coverage Endorsement.
What is the final revenue guarantee?
The final revenue guarantee is based on expected yield multiplied by expected price along with the coverage level selected. Expected milk yields are based on state-level National Agricultural Statistics Service (NASS) estimates of milk production per cow in the pooled production region. Growers will have several options to choose from for the expected milk price. The default option will be futures prices. Other options will allow growers to insure the price for specific milk components, such as protein and fat. This is intended to allow producers to choose coverage that better matches their specific risks.
How do you calculate the final revenue guarantee for the component pricing option?
For the class price option, the final revenue guarantee is calculated as follows: ((final butterfat test x expected butterfat price) + (final protein test x expected protein price) + (5.70 x expected other solids price)) x covered milk production ÷ 100.
How is final revenue guarantee calculated for component pricing option?
The final revenue guarantee is determined by multiplying the expected butterfat, protein and other solids prices x the final component tests x covered milk production ÷ 100.
How would my indemnity be calculated?
Dairy-RP provides insurance only for the difference between the final revenue guarantee and actual milk revenue multiplied by actual share and protection factor, caused by natural occurrences in market prices and yields in the pooled production region.
Can I participate in Farm Service Agency’s Margin Protection Program and Dairy-RP?
Yes, you may participate in both programs at the same time.
What pricing options are available?
There are two pricing options available: the Class Pricing Option and the Component Pricing Option.
Can I participate in the Livestock Gross Margin for Dairy (LGM-Dairy) program and Dairy-RP?
Yes, you may have LGM-Dairy and Dairy-RP policies in effect for the same crop year, but only one policy, either LGM-Dairy or Dairy-RP can have endorsements in effect for the quarterly insurance period. For example: One policy is Dairy RP and the other is a LGM-Dairy policy insuring the same milk for the quarterly insurance period, the policy with the earliest date of endorsement for the quarterly insurance period will be in force and the other endorsement will be void.
Does this policy cover any other types of loss such as death of the dairy cattle?
No, this policy does not insure against the death or other loss or destruction of your dairy cattle, or against any other loss or damage of any kind whatsoever.
What is a pooled production region?
A pooled production region is a group of states used to determine the milk production per cow within a region identified in the Dairy Revenue Protection Commodity Exchange Endorsement.
When can I purchase Dairy-RP?
The Dairy-RP is available for purchase every business day when the coverage prices and rates are validated and published on RMA’s website.
What is the Quarterly Coverage Endorsement?
An endorsement to the policy necessary to provide coverage that includes information about the quarterly insurance period and declared coverage options.
What is the quarterly insurance period?
The three-month period, corresponding to one of the eight quarters available for purchase during the crop year.
What is the Component Pricing Option?
The Component Pricing Option uses the component milk prices for butterfat, protein, and other solids as a basis for determining coverage and indemnities. The insured selects the declared butterfat test and declared protein test and the other solids test is fixed at 5.7 to establish the milk price.
When is the premium due on Dairy-RP?
Premium is payable at the end of the Quarterly Insurance Period.
Source: USDA RMA