Dairy Risk Managment Tools
Dairy farmers have a wide range of risk management tools available to help deal with the increased volatility of milk prices and feed costs. Options have increased in recent years, with more affordable premiums for the Dairy Margin Coverage Program (DMC); greater access for dairy producers to the Livestock Gross Management (LGM) program; and the introduction of the new Dairy Revenue Program (DRP).
Dairy Margin Coverage Program (DMC)
Like the Margin Protection Program, DMC is a voluntary program that makes payments when the national average income-over-feed-cost margin falls below a farmer-selected coverage level. Coverage is now available from $4 per hundredweight to as high as $9.50 per hundredweight. Dairy producers pay premiums for coverage and may annually re-select their coverage options. Farmers making a one-time election receive a discount on DMC premiums. Program payments may be triggered monthly and are made if the DMC margin falls below the farmer’s elected coverage level. Program payments are based on the amount of milk covered in the program and may range from 5 percent to 95 percent of a farm’s milk production history in 5 percent increments.
Among the major changes in DMC:
Three new Tier 1 coverage levels of $8.50, $9.00 and $9.50 per hundredweight;
Premiums are made more affordable for certain coverage levels;
Premium discount for a one-time election;
Farms may now cover between 5 percent and 95 percent of their historical milk production history;
Farms may make different coverage elections for Tier 1 and Tier 2 coverage;
MPP premiums paid from 2014 to 2017 are eligible for a refund;
Retroactive coverage for MPP in 2018 for farms with LGM-D coverage; and
Farmers can use DMC and crop insurance programs on the same milk.
Click here to read more on DMC from
the American Farm Bureau Federation
USDA Secretary Sonny Perdue set the following key dates for dairy-program implementation this year:
March 18 – Producers locked out of the Margin Protection Program last year because they were already enrolled in Livestock Gross Margin-Dairy policies may begin to retroactively enroll in Margin Protection Program coverage for 2018, pursuant to the program as modified last year by the Bipartisan Budget Act.
April 15 – Producers will have access to an updated online decision tool to help evaluate their options under the new Dairy Margin Coverage Program, the successor to the Margin Protection Program.
April 30 – Producers will be able to receive to partial refunds of Margin Protection Program premiums pursuant to a farm-bill provision allowing the payback. Secretary Perdue noted that this provision is happening later than hoped; for the first two years of MPP, producer premium and payment information was recorded by hand rather than electronically, thus creating a need to first re-enter that information electronically.
June 17 – DMC signup scheduled to begin.
July 8 –DMC payments scheduled to begin, retroactive to Jan. 1.
Dairy Revenue Program (DRP)
Dairy Revenue Protection (Dairy RP) is an area-based revenue product designed to insure against unexpected declines in the quarterly revenue from milk sales relative to a guaranteed coverage level.
View Dairy RP Brochure from American Farm Bureau Federation
Livestock Gross Management Program (LGM)
Click here for a USDA Fact Sheet on Livestock Gross Margin Insurance
The Livestock Gross Margin Insurance Plan for Dairy Cattle (LGM-Dairy) provides protection when feed costs rise or milk prices drop and can be tailored to any size farm. Gross margin is the market value of milk minus feed costs. LGM-Dairy uses futures prices for corn, soybean meal, and milk to determine the expected gross margin and the actual gross margin. LGM-Dairy is similar to buying both a call option to limit higher feed costs and a put option to set a floor on milk prices.
Only milk sold for commercial or private sale and primarily intended for final human consumption from dairy cattle fed in the states listed below is eligible for coverage. There is no minimum number of hundredweights you can insure. The maximum amount of milk that can be insured is 24 million pounds per crop year.
Prices for LGM-Dairy are based on simple averages of Chicago Mercantile Exchange Group futures contract daily settlement prices, and are not based on the prices you receive at the market.
A premium subsidy is available for those policies that insure multiple months during the insurance period. The subsidy amount is determined by a dollar deductible the you choose (ranges from $0—$2 in $0.10 increments). If you choose a $0 deductible you receive a lower premium subsidy (18 percent) and if you choose the highest deductible of $2 you receive a higher premium subsidy (50 percent). The premium is due at the end of the coverage period. LGM premiums depend on your marketing plan, coverage you choose, deductible level, and futures and price volatility.