As 2024 draws to a close, Class III milk prices have strengthened, driven by bullish cheese fundamentals and increased export demand for whey products. At the same time, Class IV prices have held firm, supported by lower butter inventories and strong demand.
Producers now have a valuable opportunity to secure higher revenue floors in an increasingly volatile market by enrolling in the Dairy Revenue Protection (Dairy-RP) program. This program is a great addition to a sound risk management strategy, allowing producers to give added focus on managing volatility beyond the commodity sector and unpredictable geopolitical, macroeconomic and other unforeseen risks.
What is Dairy-RP?
Managed by the USDA’s Risk Management Agency (RMA), Dairy-RP is a program aimed at risk mitigation. Since 2020, a notable 20% to 25% of the total milk produced in the U.S. has been safeguarded by risk management programs. Available in all 50 states, the program is a comprehensive solution for understanding costs, milk markets and herd capabilities. The expected revenue is based on future prices for milk and dairy commodities and the amount of covered milk production selected by the producer. The covered milk production is indexed to the marketing order or production region in which the operation is located.
Up to 95% of expected quarterly revenue may be covered through the program. At the end of the policy period, if the actual milk revenue is below the final revenue guarantee, the producer may receive a payment for the difference between the final revenue guarantee and the actual milk revenue multiplied by the share and protection factor.
Producers can choose between two revenue pricing options: class or component. Class pricing bases revenue protection on regionalized revenue constructed with Class III and Class IV milk prices, allowing producers to establish their price guarantee per hundredweight. At the same time, component pricing is based on milk component production, including customizable butterfat and protein percentages with a fixed percentage of other solids at 5.7%.
How does Dairy-RP work?
The goal of the program is not only to foster financial stability within the dairy industry but also to make a positive impact by reducing barriers to entry in risk management for producers through subsidized premiums. This commitment is particularly crucial given the ongoing challenges faced by dairy operations, including fluctuating milk prices, input costs and market access.
One of the distinguishing features of the program is its adaptability to the specific needs of each dairy operation. This program takes into account regional pay structures and the operation’s environment. Unlike a one-size-fits-all approach, farmers enrolled in Dairy-RP are encouraged to seek personalized advice from local advisers with knowledge of their region and cost structures.
By providing this localized approach, the program enhances its effectiveness and helps ensure producers receive relevant insights and support that can directly contribute to their bottom lines. Ultimately, by addressing these challenges and providing tailored solutions, Dairy-RP aims for financial balance in each dairy operation and contributes to the long-term viability of the dairy industry.
What sets Dairy-RP apart?
Historical programs like Dairy Margin Coverage (DMC) have limitations, but new programs like Dairy-RP aim to fill gaps and offer a comprehensive solution. Dairy producers should consider enrolling in both DMC and Dairy-RP as part of their risk management plan because DMC sets a safety net for rising feed prices, while Dairy-RP goes a step further by helping ensure a reliable base milk income for dairies of any size.
Producers can cover up to 100% of their volume with no minimum requirements. This is particularly crucial as industry costs continue to rise, making financial stability a paramount concern for dairy producers looking to stay competitive. Dairy-RP can aid in providing a reliable base income, helping prevent pitfalls that could arise without adequate risk management.
Leveraging specialized expertise
The development of risk management tools such as Dairy-RP reflects the industry’s acknowledgment of the hurdles encountered by dairy producers. To ensure producers are equipped with practical tools to navigate the complexities of the industry, companies that specialize in and have a great understanding of the dairy industry from seed to milk are uniquely positioned to offer Dairy-RP and provide support to producers who are enrolled or looking to enroll in the program.
In the high-cost and rapidly evolving environment of the U.S. dairy industry, adopting and adapting to innovative risk management tools and working with a partner committed to providing accessible risk management solutions with consultative support becomes essential for a dairy operation’s ability to remain competitive.
Risk management is no longer a nice to have; it’s a must-have strategy. Whether you’re new to risk management or have extensive experience, we are here to help you build a robust plan. Today’s risk management products are more flexible, affordable and accessible than ever before, and Dairy-RP, with its wide applicability across various dairy operations, remains one of the most effective tools for producers facing uncertainty.
This article is provided for information purposes only. Readers should consult their own professional advisers for specific advice tailored to their needs. Information contained in this article may be subject to change without notice.
