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With shutdown ended, Dairy-RP sales jump

Progressive Dairyman Editor Dave Natzke Published on 05 February 2019

With the government shutdown ended, U.S. dairy producers covered an additional 1.6 billion pounds of milk under Dairy Revenue Protection (Dairy-RP) insurance policies in the first week after policy sales resumed.

As of Feb. 4, dairy producers have covered revenue on about 13.4 billion pounds of milk production under the program. Of the 1.6-billion-pound increase between Jan. 28-Feb. 4, Wisconsin producers added more than 210 million pounds of milk covered under Dairy-RP, followed by California, up nearly more than 182 million pounds. Producers in three other states – Idaho, Kansas and Minnesota – added more 100 million pounds of milk during the week.

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The latest report shows 1,859 dairy producers had filed Dairy-RP applications in 35 states (Table 1). Of the applications, 971 have purchased 2,798 quarterly endorsements. Total premium costs on purchased endorsements were about $44 million, with USDA Risk Management Agency (RMA) subsidies covering about $18.1 million of that.

020519 natzke dairy rp sales jump

Click here or on the table above to open it at full size in a new window.

Compared to a week earlier, producers purchased 524 quarterly endorsements. Endorsements are also now available through the first two quarters of 2020.

The marked increase in Dairy-RP sales likely reflects pent-up demand. There had been no Dairy-RP sales activity since the government shutdown in late December. The USDA’s RMA began posting quarterly premiums and endorsement cost estimates on Jan. 28, the first full day after the partial government shutdown ended.

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“Time may be right because with current tight cash flows, dairy producers need a way to guarantee future cash flows for banks and stakeholders,” said Ron Mortensen, Dairy Gross Margin LLC, a firm offering Dairy-RP endorsements. “Dairy-RP may finally be a product that dairy producers understand and are willing to use. It is a tool they wanted and/or needed for a long time.”

Since Oct 9, 2018 – the first day Dairy-RP policies were offered – the 13.4 billion pounds of milk covered is about 6.4 percent of the total annual U.S. production, or about about 67,000 Chicago Mercantile Exchange (CME) milk futures contracts, Mortensen said. During the same period, CME Class III futures open interest was just over 25,000 contracts.

Producers seeking Dairy-RP coverage can purchase endorsements through trained crop insurance agents, up to five quarters into the future. Near term, Dairy-RP sales covering milk revenue for the second quarter (April-June) of 2019 close on March 15; sales covering milk revenue for the third quarter (July-September) of 2019 close on June 15.

Dairy-RP policies are not available for sale on days of USDA dairy reports with a potential impact on markets, or days when CME markets move up or down contract limits. Producers can also participate in Dairy-RP independent of all other dairy risk management programs.

Dairy-RP is designed to insure against unexpected declines in the quarterly revenue from milk sales relative to a guaranteed coverage level. The 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. More information is available on the RMA website.  end mark

Dave Natzke
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