Activity in Dairy Revenue Protection (Dairy-RP) increased in the program’s second week, based on information from USDA’s Risk Management Agency.
As of Oct. 22, 444 dairy producers had filed applications (Table 1). Leading states were: Wisconsin, 124; Idaho, 70; Washington, 39; Michigan, 38; and Minnesota, 34. (A reminder: Dairy producers apply for a Dairy-RP policy, but purchase coverage, called “endorsements,” on a quarterly basis.)
Of the applications, 89 quarterly endorsements had been purchased, covering 850.3 million pounds of milk. Leading states in which dairy producers purchased quarterly endorsements were: Wisconsin, 21; Idaho, 15; and Michigan and South Dakota, 11 each.
All but one of the endorsements were purchased at the 95 percent coverage level; the other was at 90 percent.
Total premium costs on purchased endorsements were about $3.2 million, with USDA RMA subsidies covering about $1.3 million of that.
There were no Dairy-RP sales on Oct. 19 or Oct. 22, due to the release of USDA’s Milk Production and Cold Storage reports, respectively.
This week, Progressive Dairyman contacted two members of Dairy Gross Margin LLC – licensed to sell Dairy-RP policies in 22 states – to gain their insights on program participation.
“The dairymen I am interacting with are genuinely interested in understanding the program and how it might work for them,” said Geoff Vanden Heuvel, based in California. “If they have already participated in hedging programs, understanding the mechanics of Dairy-RP is not that complicated for them. For those who have not participated in hedging, the value proposition of spending money to create a floor price that is really not profitable is a more difficult decision. This tends to create a wait-and-see response.”
“Dairy-RP is really in phase one, where dairymen, educators and lenders are still learning about the product,” said Dairy Gross Margin’s Ron Mortensen. “Every dairyman has a different risk profile and wants to know what the floor prices generated by Dairy-RP can do for them. We saw more activity on week two. As we suspected, all of the coverage levels we did were at 95 percent.”
Premium rate variation between states is raising questions.
“The fact that premiums vary by state creates an extra discussion point,” Mortensen said. “Premiums in the Upper Midwest, for example, are cheaper than many other parts of the country.”
Back-of-envelope calculations by Progressive Dairyman show Dairy-RP premiums in California are about 30 percent higher than the lowest-premium state, Minnesota. The calculations compared coverage using the Class Pricing Option, 100 percent Class III milk price and 95 percent coverage rate.
Read: Producers still ‘kicking tires’ on Dairy-RP
One of the least understood, and least utilized, pieces of Dairy-RP to-date is the use of the "Protection Factor.”
“There has also been a lot of discussion regarding the Protection Factor, and so far most have opted to not purchase more than the 1.0 factor,” Mortensen said. “I would not expect a lot of interest in the increased Protection Factors until milk prices are more profitable for dairymen.”
For additional backround information, also read: Dairy Revenue Protection: Some practical matters 
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Dave Natzke
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