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What happened? What’s next? - Dairy-RP adding ‘natural disaster’ coverage flexibility

Progressive Dairy Editor Dave Natzke Published on 25 May 2022

In this column, Progressive Dairy summarizes issues in the news and attempts to describe how they might affect dairy farmers. Look for more extensive background and details at Progressive Dairy. Editor's note: This article has been updated to include additional information from the USDA regarding "mailbox" prices.

Items in this column are compiled from Progressive Dairy staff news sources. Send news items to Dave Natzke.

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DAIRY REVENUE PROTECTION

What happened?

Earlier this year, the Federal Crop Insurance Corporation approved revisions to several insurance plans, including Dairy-Revenue Protection (Dairy-RP), Livestock Gross Margin (LGM) and Livestock Revenue Protection (LRP). Dairy producers using Dairy-RP will have an additional income safety net covering milk production losses due to natural disasters.

What’s ahead?

The revisions are applicable for the 2023 USDA crop insurance year, beginning July 1, 2022, and succeeding crop years.

Bottom line

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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.

Under 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, fire, flood, severe storm damage or earthquake.

“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,” said Richard Flournoy, RMA deputy administrator. 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.

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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.

Revisions to LGM-Dairy, other LGM and LRP policies are primarily clarifications to wording to align plans with other federal crop insurance programs. For livestock producers choosing coverage under LRP, revisions increase head limits eligible for coverage under a single endorsement to 12,000 head of fed or feeder cattle and 25,000 head per crop year.

2022 DAIRY MARGIN COVERAGE PROGRAM

What happened?

With the outlook for substantially higher milk prices this year, enrollment in the USDA’s 2022 Dairy Margin Coverage (DMC) program declined slightly, according to USDA data released May 2.

What’s ahead?

Despite weakening milk futures prices and higher corn and soybean futures prices to start May, market conditions at the end of April indicated DMC margins could stay above the $9.50-per-hundredweight (cwt) maximum Tier I coverage level throughout 2022. April’s DMC margin, to be announced May 31, is forecast to be the high for the year, at $11.91 per cwt.

Bottom line

As of May 2, 17,570 dairy operations (about 71.5% of those with established milk production history) had enrolled in the 2022 DMC program. That’s down about 1,500 dairy operations from 2021 DMC enrollment.

With smaller producers eligible to boost annual milk production history retroactively to 2021 through 2023 under the Supplemental DMC, total milk production recorded with the USDA’s Farm Service Agency (FSA) for 2022 is just over 205 billion pounds, down 14 billion pounds from 2021. Of that total, milk production enrolled for 2022 was estimated at 157.2 billion pounds, down about 5.6 billion pounds from 2021 and representing about 76.7% of the established history.

Likely contributing to that decline is the drop in dairy farm numbers; the USDA’s National Ag Statistics Service estimated there were 29,858 dairy herds licensed to sell milk in 2021, down from 31,652 in 2020.

DAIRY POLICY REFORM

What happened?

Michigan dairy farmer Ashley Kennedy presented testimony during the Senate Ag Committee’s first field hearing on the 2023 Farm Bill, April 29, in East Lansing, Michigan. Kennedy, whose family milks 240 cows in east-central Michigan, presented oral and written remarks on behalf of the Michigan Milk Producers Association (MMPA), and the National Milk Producers Federation (NMPF).

What’s ahead?

The Michigan field hearing was held in the home state of U.S. Sen. Debbie Stabenow (D-Michigan), committee chair. The committee is expected to hold an additional field hearing in Arkansas, the home state of Sen. John Boozman, ranking Republican member.

On a separate track, there have been no petitions filed to initiate hearings on Federal Milk Marketing Order (FMMO) reform.

Bottom line

As part of her statements, Kennedy urged ag committee members to include DMC milk production milk history adjustments, retroactively implemented to cover 2021 and set to expire at the end of 2023, to be carried over into the next farm bill.

Citing the combined impact of USDA cheese purchases during the COVID-19 pandemic and the negative impact of changes to the Class I mover pricing formula, Kennedy said the events of the last two years have put a spotlight on the need for an overall update to the FMMO system. As a result of Class I mover changes, Class I skim milk prices during the second half of 2020 averaged $3.56 per cwt lower than they would have under the previous mover, creating a net loss to dairy producers of more than $750 million over that period. That included over $117 million in net losses in the Mideast FMMO, which includes Michigan.

Beyond risk management and milk pricing policies, Kennedy also advocated for additional investments in conservation programs, urged a doubling of funding for key trade promotion programs and spoke to the importance of farm bill nutrition programs. She closed by urging lawmakers to provide robust resources to address the need for significant mental health policy in the farm bill. end mark

Dave Natzke
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