Dairy producers using the USDA Risk Management Agency (RMA) Dairy Revenue Protection (Dairy-RP) program will have an additional income safety net covering milk production losses due to natural disasters starting with the 2023 crop insurance year.
In February, the Federal Crop Insurance Corporation approved revisions to several insurance plans, including Dairy-RP, Livestock Gross Margin (LGM) and Livestock Revenue Protection (LRP) plans. The revisions are applicable for the 2023 USDA crop insurance year, beginning July 1, 2022, and succeeding crop years.
“Dairy and livestock producers now have several new and improved options to utilize crop insurance for their operations,” said Richard Flournoy, RMA deputy administrator. “These updates reflect the importance we place on always knowing the evolving needs of producers and offering the most people the best risk management tools we can. Producers should reach out a crop insurance agent to learn more about these tools.”
Following are summaries of Dairy-RP, LGM and LRP revisions.
Dairy-RP
Dairy-RP provides protection against a decline in revenue (yield and/or price) on the milk produced from dairy cows on a quarterly basis. Indemnity payments are determined by calculating the difference between expected revenue and actual revenue according to market prices, adjusted on a state or regional basis to account for differences between expected and actual milk production.
Through Dairy-RP, producers can purchase quarterly “endorsements” for up to five future quarters. Price coverage categories include Class III milk, Class IV milk, or a selected butterfat and protein combination. Producers are obligated to market 85% of the covered milk volume or 90% of the components to receive full indemnity payments. In event of a natural disaster, however, those thresholds may not be reached.
Under the revision, producers gain additional flexibility to continue coverage when experiencing a natural disaster at their dairy operation, such as a tornado or fire. Other natural disasters that could be included would be floods, severe storm damage or earthquakes.
“If there is a natural disaster that prevents you from marketing your milk, you may use the milk marketing records as of the date of the disaster to estimate the milk marketings for the insurance period,” Flournoy said. Producers can also use prior milk marketing records if the disaster occurs prior to the start of the insurance period.
The provision does not insure against the death or other loss or destruction of dairy cattle. Additionally, any impact to herd health that affects milk production would need to be tied to the natural disaster.
With another revision to be implemented in the 2023 crop insurance year, sales of Dairy-RP can be suspended during a sales period “in rare circumstances in which market conditions drastically change after coverage offers have been made,” Flournoy said.
Currently, Dairy-RP coverage cannot be purchased on days when major USDA dairy reports with the potential to impact markets are released, including monthly Milk Production, Cold Storage and Dairy Product reports. Dairy-RP is also not available on days when applicable Chicago Mercantile Exchange (CME) futures contracts move limit-up or limit-down, or on days when CME trading is closed due to holidays. Progressive Dairy updates a risk management calendar each month. (Read: April-May dairy risk management calendar: Consider pressure, premiums.)
Under federal crop insurance programs, producers can purchase coverage through only one certified crop insurance agent during a crop insurance year. For example, cancellation of one policy to submit an application for another policy with a different insurance provider within the same crop year is not allowed. A revision approved in February clarifies language that the date to terminate a Dairy-RP policy with an insurance agent is June 30 each year.
Dairy-RP program provisions, changes and a list of frequently asked questions are available on the RMA website.
LGM-Dairy
Revisions to LGM-Dairy policies are primarily clarifications to wording to align plans with other federal crop insurance programs.
LGM-Dairy is an insurance product covering both the price of milk and feed. In general, it protects from lower milk prices and higher feed prices. Gross margin is milk price minus feed (corn and soybean meal) prices. LGM-Dairy pays the difference between the gross margin guarantee and the actual gross margin, as defined in the policy provisions, for milk covered.
The milk prices for LGM-Dairy are three-day averages of Class III futures prices. Three-day averages for corn and soybean meal futures prices are used for the feed side of the policy. LGM-Dairy has flexibility in how much feed is included in the policy they purchase.
Sales periods for the LGM-Dairy program are open on a weekly basis. Unlike Dairy-RP, LGM-Dairy is available even if a sales period falls on the day of a USDA report.
An updated LGM-Dairy fact sheet is available here.
LGM and LRP
Aside from milk, other LGM and LRP policy changes impact livestock losses (not milk), including dairy cattle, fed and feeder beef cattle, and swine.
The revisions allow an insured producer to have both a LRP and LGM policy but not on the same class of cattle during the same end month, nor can they insure the same livestock under multiple endorsements or policies.
For livestock producers choosing coverage under LRP, revisions applicable for the 2023 and succeeding crop years increase head limits eligible for coverage under a single endorsement to:
- Fed cattle: 12,000 head per endorsement and 25,000 head per crop year
- Feeder cattle: 12,000 head per endorsement and 25,000 head per crop year
Additionally, the termination date for LRP policies is extended from June 30 to Aug. 31. RMA will require proof of ownership before indemnity payments are issued. Insurance companies are required to pay indemnities within 30 days of a claim application, shortened from the previous limit of 60 days.
Premium payments
Under RMA revisions, all three plans (Dairy-RP, LGM and LRP) now allow producers the flexibility to deduct premiums from indemnity payments, helping them manage cash flows.
For links to Dairy-RP, LGM-Dairy and LRP programs and revisions, click here.
Interested producers can contact a certified crop insurance agent for further information. A list of agents can be found here.
