Typically, I recommended he utilize USDA’s programs, but not always. Some programs had too many strings attached to be worth his time. As I visit with dairy pro- ducers about USDA’s new Dairy Revenue Protection insurance (Dairy-RP), I often think of my dad, and I wonder if anybody is offering dairy producers the candid advice they need in today’s challenging market, even if it isn’t what they want to hear.
After reflecting on what I have heard from many dairy producers, and recalling what I learned from overseeing USDA’s insurance pro- grams, here is what I would say, “If my dad were a dairy farmer.”
Don’t try to outguess the mar- ket — Nobody drops their farm’s liability coverage because their gut tells them there won’t be any mis-haps next year. It would be unheard of to carry auto insurance for the second half of the year, but not the first half — just on a gut feeling that no accidents will happen the first half of the year.
The same applies to Dairy-RP, an insurance product that estab- lishes a floor on revenue. The smart way to utilize Dairy-RP is to con- tinuously keep a floor under milk revenue by purchasing on a set schedule without trying to pre- dict where milk prices are headed. Attempting to outguess the market is a fool’s errand.
Stay in it for the long run — Dairy-RP pays when revenue drops unexpectedly, which, it turns out happens a lot. However, judging this program by how it works over a short period isn’t smart.
Historical analysis demonstrates Dairy-RP is a good deal over the long term, so establish a long-term plan and stick with it. Budget the cost to insure the furthest quarter out as soon as coverage is available. Think five years, not five months.
Dairy-RP is a game changer — Not all historical USDA dairy pro- grams have worked well, especially for mid to large-sized dairies. But if you don’t incorporate Dairy-RP into your business plan, odds are you may regret it. Margins are too tight and markets are too volatile to man-age risk like yesteryear. Skeptical? Run the numbers yourself and see how it would have done.
Insure far in advance — It costs more to insure the months farthest in the future. But estab-lishing a floor up to or beyond a year in advance provides peace of mind and helps budget even as markets fluctuate. My analy-sis indicates that insuring far in advance is superior to insuring near term months.
Find yourself a good agent — Find an agent who can explain Dairy-RP inside and out, answers all of your questions, and is respon-sive. Dairy-RP should be around for a long time, unlike farm bill programs, it doesn’t expire in five years. So be picky, and find an agent you can work with over the long run.
