Dairy Revenue Protection (DRP) is an insurance plan approved by the Federal Crop Insurance Corporation to allow dairy farmers to purchase risk management protection against declines in quarterly revenue from milk sales as a result of a decline in milk prices, a decline in milk production, or both.
Revenue will be determined by a producer selecting to base their coverage on a mix of Class III and Class IV milk prices or milk components (milkfat, protein, and other milk solids). Coverage will be based on quarterly revenue.
DRP 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 region where the dairy producer is located.
DRP is approved for sale in all counties in all 50 states.
The dairy producer has five basic decisions to make on the DRP policy:
- The value of milk protected
- The amount of milk production to cover
- The level of coverage (from 70 to 95 percent of the revenue guarantee)
- Which quarterly contracts to purchase
- Protection factor
The policy will be sold on a daily basis and would insure a quarter of milk production. Policies would be offered by USDA-approved insurance providers and could be purchased voluntarily for an individual quarter, or a strip of quarters, up to five quarters out. For each Sales Closing Date, the Dairy farmer will select how milk is priced by either choosing the milk class price option or the combination of milk components option, the coverage level (70-90% of the expected revenue) and the quarterly time frame. The revenue guarantee will be based on future milk prices and expected production. The price of the policy would vary daily based on the farmer-selected parameters on the expected risk in the market.
After RMA releases the monthly milk and component prices for the quarter and USDA’s milk production report identifies the actual milk production per cow for each state, the state-indexed actual revenue will be compared against the revenue guarantee. If the actual revenue is below the guarantee, the farmer is paid an indemnity based on the difference.
If you have questions or would like more information on this program, please contact Mike Fanning:
Mike Fanning, Ph.D., PAS
National Livestock Manager
The information contained in this publication is for general purposes only and shall not modify the terms of any insurance policy.