Boise—The American Farm Bureau Federation teamed up with Farm Bureau Insurance and Dairymen to develop a new risk-management insurance safety net for dairy farmers.
The Idaho Dairymen Association and the Idaho Farm Bureau held informational meetings across Idaho in June. Farmer Terry Jones of Emmett thinks dairy operations need safety net programs to survive everyday market losses.
“When you purchase a car what the first thing you buy? Its insurance and why do you do that? To protect your asset. We need something to protect our assets so we don’t dig into our bottom line or capital base and destroy the whole operation,” said Jones.
Dairy Revenue Protection is an insurance plan allowing farmers to purchase risk management protection against quarterly milk market declines and unexpected declines in milk prices, milk production, or both.
If the Farm Bill is passed this year, Dairy Revenue Protection insurance would give farmers like Jones the opportunity to manage risks by focusing on their profits from milk sales. The program is endorsed by the USDA’s Federal Crop Insurance Corporation.
“I think this a timely and needed product for the dairy industry, we’ve seen volatility in the feed side and market side and the market side of dairy production. It's nice to see a product coming on that finally benefits dairymen,” said Zak Miller, Commodities Director of the Idaho Farm Bureau.
That sentiment was echoed by the President of the American Farm Bureau.
“We know that the level of risk protection available to dairy farmers was inadequate and we saw a clear opportunity to help by specifically addressing the impact of milk price volatility on a dairy farmer’s revenue,” said AFBF President Zippy Duvall.
Duvall says the coverage help shields dairy farmers from unexpected declines in milk prices and milk production by addressing a farmer’s overall revenue.
“We’re excited about teaming up with American Farm Bureau Insurance Services to offer this new risk management tool to dairy farmers,” added Duvall.
By design, Dairy Revenue Protection provides different levels of insurance coverage based on the value of the farmer’s milk. One option uses milk futures prices while the other option is based on the value of milk components, things like milkfat, whey protein, and other milk solids. A majority of dairy farmers selling milk in the US are paid just on the amount of milkfat and protein in their milk.
Tim Green, Vice President of American Farm Bureau Insurance Services visited Boise for the meetings and says Dairy-RP policies have been received well by both the House and Senate:
“This Farm Bill is encouraging because there seems to be less angst about making changes. They want to keep things the way they are. There are still issues with dairy that needs to be addressed, but overall things are going well,” said Green.
The Senate Agriculture Committee approved its farm bill on a near-unanimous vote, 20-1, sending the bill to the Senate floor for a debate and that bodes well for the Dairy Revenue Protection program.
The House passed their version earlier this month and there were no changes in their version of Dairy-RP, thus far.
Dairy-RP coverage works just like the area-based crop revenue-protection insurance policies. Crop coverage offers revenue guarantees based on three things: futures prices expected production and market-implied risk.
“Dairy-RP allows farmers to pick a value of milk based on a component value or a mix of class-three or class-four milk. Then the farmer picks how much milk they want to cover, a dairy percentage, and that becomes a revenue guarantee for the farmer on the policy,” said John Newton, American Farm Bureau Economist who attended the informational meetings in Pocatello, Twin Falls, and Boise.
Newton says the Farm Bureau started contacting Dairy farmers two years ago to see what kind of fixes they needed in the farm safety net in the Farm Bill. Newton points to the success of crop programs as an example of why dairymen need the same type of protection.
“In 2016, with declining crop prices, more than $2.2 billion in insurance indemnities were paid to corn, cotton, rice, soybean and wheat farmers. Dairy-RP would have provided similar protection in 2015 and 2016 when those milk prices fell by nearly 50 percent and the total US farm value of milk fell by nearly $15 billion,” said Newton.
Newton says that under the Dairy-RP program a big selling point is that a farmer has only four decisions to make when working on his protection policy which include: the value of milk protected, the amount of milk production to cover; the level of coverage from 70 to 90-percent of the revenue guarantee; and which quarterly contracts a farmer wishes to purchase.
Dairy-RP policies would be sold by USDA-approved insurance providers and could be purchased for an individual quarter, or a strip of future quarters, up to 5 quarters out. The price of the policy will vary daily based on the farmer-selected parameters and on the expected risk in the market according to Newton.
Like other crop insurance policies, USDA would provide a premium discount to purchase Dairy-RP and the discount would increase as the farmer’s elected deductible increased, for instance, 70-percent coverage has a higher premium discount than 90 percent coverage. Preliminary economic studies show that a Dairy-RP policy, covering 90 percent of the milk revenue, could cost 5 to 40 cents per hundredweight, depending on the quarter of the year covered and other policy parameters.
Newton adds that Dairy farmers need additional risk management tools that reflect the diversity of milk production.
“While Farm Bureau continues to work to improve the dairy safety nets available from USDA, the efforts to develop a new revenue-based insurance product will greatly improve the dairy safety net by providing another option in the risk management toolbox,” said Newton.
The first Dairy-RP policies could be available by late this summer with Congressional Approval.