Progressive dairy products provides monthly online updates of important dates, reports and advice affecting risk management decisions.
Wondering what risk management tools your fellow dairy farmers use? In an Intel Market Report for the American Farm Bureau Federation, Labor Economist Dan Munch outlined two popular programs, Dairy Revenue Protection (Dairy-RP) and Livestock Gross Margin for Dairy (LGM-Dairy).
Over the three-year period from 2019 to 2021, the number of Dairy-RP policies sold increased by 43%. So far, attendance in 2022 has nearly exceeded that of 2021, with more than half of the year remaining.
By state, Wisconsin had the most Dairy-RP policies in 2021 with 1,466, followed by Minnesota (757), California (488) and New York (377). Participation in 2022, so far, is currently only 156 policies behind last year, with the largest net gains in California (+56), Iowa (+25) and Texas (+11). The geographic distribution of Dairy-RP policies in 2021 revealed significant concentrations in heavy milk producing counties in the upper Midwest and California. Other high milk producing states like New York, Pennsylvania, Idaho, Washington and New Mexico also have a large stake.
Reviewing LGM-Dairy’s participation and usage statistics over the past five years (2017-22 to date), Munch said there were few discernable participation trends. Overall, participation in LGM-Dairy shows a fairly stable base of users who have found benefits in using the programs’ unique bundled coverage approach under highly customizable short or long-term contracts.
Policies sold ranged from a low of 1,067 in 2018 to a high of 1,622 in 2017, with 1,355 in 2022 so far. This represents a quarter of Dairy-RP policies sold this year. In terms of geographic distribution, LGM-Dairy’s sales in 2021 were almost exclusively in the Upper Midwest states, likely pointing to ease of using Class III milk pricing. Wisconsin had the most policies sold with 872, or 64% of all LGM-Dairy policies sold last year, followed by Minnesota (268) and Michigan (118). Between 2021 and 2022, the largest increase in policies sold occurred in Wisconsin (+144) and Michigan (+22), while the largest declines occurred in Florida (-26) and Ohio (-5).
The number of counties with active LGM-Dairy policyholders has decreased by approximately 40% since 2017, although the percentage of total US dairy production insured has fluctuated between 0.74% and 1.15% over the same period . The 1.98 billion pounds insured this year under LGM-Dairy is only around 0.05% of the volume insured under Dairy-RP, with the average volume insured also being much smaller at 1.59 million pounds compared to 8, 6 million under Dairy-RP.
To read the full analysis, read: Review of Participation in Dairy Risk Management Programs.
At any given time, Dairy-RP sales are open for up to five future quarters. Closing of sales 15 days before the start of the quarter. For example, the purchase period for Dairy-RP coverage for the third quarter of 2022 ends on June 15. The market changes daily and Dairy-RP riders must be purchased between the CME market close and the next CME open.
Dairy-RP coverage cannot be purchased on days when major USDA dairy reports are released that could impact markets, including Dairy Production, Cold Storage and Dairy Reports ( to see schedule). Dairy-RP is also not available on days when the applicable futures contract increases or decreases in limit, or on days when trading on the Chicago Mercantile Exchange is closed due to holidays.
LGM-Dairy program sales periods are open on a weekly basis. Unlike Dairy-RP, LGM-Dairy is available even if a sell period falls on a USDA report day.
Click here or on the calendar above to see it full size in a new window.
Dairy-RP adds ‘natural disaster’ coverage flexibility
In February, the Federal Crop Insurance Corporation approved revisions to several insurance plans, including the Dairy-RP, LGM and Livestock Revenue Protection (LRP) plans. The revisions apply to USDA’s 2023 crop insurance year, beginning July 1, 2022, and subsequent crop years.
Dairy farmers using USDA’s Risk Management Agency (RMA) Dairy-RP program will benefit from an additional safety net covering milk production losses due to natural disasters, such as a tornado or a fire. Other natural disasters that could be included would be floods, severe storm damage or earthquakes.
Under the Dairy-RP, producers are required to market 85% of covered milk volume or 90% of components to receive full compensation payments. However, in the event of a natural disaster, these thresholds may not be reached.
The provision does not cover the death or other loss or destruction of dairy cattle. Additionally, any impact on herd health that affects milk production should be linked to the natural disaster.
For more information, read: Dairy-RP adds “natural catastrophe” coverage flexibility.
Seemingly in a race to the top, record milk prices exceeded record feed costs in March to help cushion dairy farmers’ milk revenue margins calculated under the Dairy Margin Coverage (DMC) program. The March DMC margin was $11.55 per cwt (cwt), above the Tier I upper insurable level of $9.50 per cwt.
The average price of milk in the United States announced in March 2022 increased by $1.20 compared to February to reach $25.90 per hundredweight, a new record. Part of the increase in the average milk price was offset by soaring average costs for alfalfa hay, corn and soybean meal.
Read: Rising milk price outpaces feed costs in March DMC margin.
The April DMC margin will be announced on May 31.
USDA Dairy Production Report, Outlook
Monthly U.S. milk production was below year-ago levels for a fourth straight month in April, with cow numbers lower than a year earlier and production per cow unchanged.
The preliminary number of cows in the United States in April was unchanged from March. However, March estimates have been revised up by 7,000 head from last month’s preliminary report and are up 35,000 head from January. April 2022 U.S. cow numbers are still down about 105,000 head from the May 2021 peak.
Read: April 2022 milk production down from a year ago.
The USDA’s World Ag Supply and Demand Estimates (WASDE) monthly report, released on May 12, revised the U.S. milk production estimate for 2022 upward as dairy cow inventories rise largely offsetting the slower milk growth per cow. With the increase in production, the outlook for milk prices at the farm level remained stable or even slightly lower.
Compared to last month, the USDA raised the milk production forecast for 2022 by an additional 400 million pounds to 226.7 billion pounds. If realized, production in 2022 would only increase by 0.2% compared to 2021. The forecast annual average price for Class III remained unchanged from last month at $22.75 per cwt. The Class IV projected price has been reduced by 25 cents to $23.80 per cwt. The all milk price forecast for 2022 has been lowered by a nickel to $25.75 a quintal.
In its initial look at 2023, the USDA projected milk production of 229.5 billion pounds, up about 1.2% from the 2022 estimate. Annual average price projections for 2023 were the following: Class III – $20.50 per hundredweight, Class IV – $21.40 per hundredweight and all milk – $23.55 per hundredweight.
For more, read Economic Outlook: Rising milk production forecast in 2022 has little impact on projected prices.
Myers will highlight the latest Class III and IV milk futures price forecasts and share updates on DMC margins and the Dairy-RP program.
Advance registration is not required. Each webinar is available via podcast or by phone. To participate, click here or call (646) 558-8656. When prompted, enter meeting ID 848 3416 1708 and passcode 474057.
- The uniform price and producer price differentials of the Federal Milk Marketing Ordinance (FMMO) for the April milk marketings were published from 10 to 13 May. In April 2022, uniform milk prices increased as more high-value Class IV milk began to return to the pools. Prices paid to producers are at record highs, but are likely near their peaks.
Read: Class IV is returning to the pool, helping to float even prices near record highs.