The author is with Atten Babler Insurance Services LLC.
When a professor instructs students to get out their calculators, a feeling of relief usually falls over the classroom as students are able to use a tool to solve a multifaceted problem. As this takes place, it is more about finding a solution and working through the mechanics.
So it is with dairy producers as they attempt to uncover the various opportunities for revenue coverage offered day-to-day by Dairy Revenue Protection (Dairy-RP) insurance. Producers are encouraged to get out their calculators.
Dairy-RP is a tool that every dairy producer should consider when putting together a milk price and revenue risk plan. Dairy-RP can be a standalone risk management tool or a complement to other pricing tools such as the farm bill’s Dairy Margin Coverage (DMC) program or dairy futures contracts. To fully view the opportunities offered by Dairy-RP requires one to have a simple, accurate calculator and quoting tool at hand to display a current Dairy-RP quote tailored to their dairy as expected price and revenue coverage levels change.
As producers have enhanced their understanding and experience with Dairy-RP, they have also recognized the complexity of the Dairy-RP premium formulations. On a daily basis, USDA’s Risk Management Agency (RMA) combines data from an array of variables including: state of production and the current prices and volatilities for the Class III, Class IV, cheese, butter, nonfat dry milk, and whey markets to generate expected milk prices and associated Dairy-RP producer premium costs.
CHOICES TO MAKE
For a producer to initiate a Dairy-RP policy endorsement, there are a number of considerations including:
- Quarterly period or periods to cover with the insurance
- Class or component pricing
- Pounds of production covered
- Percentage of revenue to insure
- Whether to use an indemnity protection factor
Combining these factors with a daily quoted producer premium calculator allows dairy farmers to quickly and accurately view their insured per hundredweight (cwt.) price level and quarterly revenue guarantee.
MAKING THE COMPLEX SIMPLE
Our group has developed a proprietary “Smart Quote” Dairy-RP quoting tool that does just that. As a producer opens Smart Quote, he or she is able to load their dairy’s state of production, expected quarterly milk production volumes, and butterfat and protein component values.
There is an option to set these values as default options going forward for all additional quoting purposes. With producer specifics loaded, and the RMA expected prices auto-filled on a daily basis, expected milk prices and associated producer premium costs are quickly and accurately displayed. Dairy-RP class or component coverage can be viewed in the charts based on information provided by USDA RMA on May 8, 2019.
TRY IT
Our group is making Smart Quote available to those who wish to use it on a trial basis by contacting our firm at 800-884-8290 or by signing up for free access at on.hoards.com/SmartQuote.
