Farm Bureau breaks down costs for new Dairy-RP insurance

A new dairy insurance plan by USDA became available Oct. 9 and offers a way to protect dairy farmer revenue — functioning in a manner similar to traditional crop insurance, as opposed to other dairy insurance programs aimed at margins between milk prices and the cost of feed. Dairy Revenue Protection is designed to protect against quarterly declines in revenue from milk sales and is uniquely structured to closely match farm-level milk prices, according to American Farm Bureau Federation, which developed the product in cooperation with American Farm Bureau Insurance Services.The cost will vary based on the state, policy choices, markets, milk yields and contract quarters, but John Newton, AFBF’s chief economist, has zeroed in on what producers can expect.Under Dairy-RP, a producer would choose either a class milk price policy or a milk component policy, the amount of milk production to cover, the level of revenue coverage to insure and which quarterly contracts to cover.Based on the CME futures settlement prices on Oct. 4, Newton’s examples of premium costs factor in a 44 percent government premium subsidy associated with covering 95 percent of expected quarterly revenue.The class milk pricing option is based on a combination of milk futures prices for Class III and Class IV, milk used to manufacture cheese and powder. A producer can choose a weight of Class III ranging from 0 percent to 100 percent to align with the utilization of milk in his marketing area.Assuming a 50 percent class weighting factor, premium rates in Wisconsin would range from a low of 11 cents per hundredweight of milk for a January to March 2019 contract to 26 cents per hundredweight for an October to December 2019 contract.