AFBF, AFBIS, Others, Propose Dairy Revenue Protection Insurance Concept

Podcast / Newsline August 24, 2017

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A proposed revenue protection insurance for the dairy industry would provide better risk management for dairy farmers. Micheal Clements has more.

Clements: A proposal submitted to the Federal Crop Insurance Corporation by the American Farm Bureau Federation, American Farm Bureau Insurance Services and others would provide a revenue-based insurance option for dairy farmers, different from the current margin-based insurance options available. AFBF Market Intelligence Director John Newton explains how the Dairy Revenue Protection insurance concept will work for dairy farmers.

Newton: For the last year, we have been working on developing this new concept plan of insurance. And it allows a farmer to insure the revenue from sales of milk during a particular quarter. So, they would use futures market prices and expected production to identify an expected revenue, and then purchase insurance protection on that expected revenue. And if the actual revenue happened to fall below that guarantee, a farmer would receive an indemnity for that.

Clements: Currently, insurance programs offered to dairy farmers all use margin-based instruments. The margin insurance programs protect the difference between the milk price and the feed cost, not revenue. Newton says the most successful tools that farmers are utilizing today are revenue-based instruments, like the AFBF proposal.

Newton: We’ve built a product that allows them to select a value of the milk in the insurance contract, either based on Class III and IV milk prices, or based on the milk components, recognizing that a majority of farms across the county are paid for the components in the milk, not a standardized price for the milk that they produce.

Clements: He says AFBF has talked with farmers across the U.S. that support the insurance concept, which he expects will be submitted to USDA for review later this fall.

Newton: A lot of farmers really think a revenue based approach would really work well for their operation, especially in years like 2015 and 2016 when we saw milk prices fall by nearly 50 percent. And we’ve gotten a lot of positive feedback on the survey that we have online to further develop the product and make sure that we ultimately present something to the FCIC that’s going to work for dairy farmers. The FCIC board of directors did vote to fund partial development of this and we expect to deliver this producer later this fall to the USDA for additional consideration.

Clements: Dairy farmers can learn more about the proposal and provide their comments at Micheal Clements, Washington.

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