The Bipartisan Budget Act adopted in early February removed the $20 million annual cap on all livestock insurance, including the Livestock Gross Margin (LGM) for dairy program. This will allow the U.S. Department of Agriculture to provide additional risk management tools for dairy producers, such as a new Revenue Protection program released by the American Farm Bureau Federation in cooperation with American Farm Bureau Insurance Services.

Approved by USDA’s Federal Crop Insurance Corp., the new Dairy Revenue Protection insurance will provide dairy farmers with the opportunity to manage risk by focusing on revenue from milk sales.

“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,” Farm Bureau president Zippy Duvall said. “This coverage will help shield dairy farmers from unexpected declines in milk prices as well as unexpected declines in milk production by addressing overall revenue. We are excited about teaming up with American Farm Bureau Insurance Services to offer this new risk management tool to dairy farmers.”

As designed, Dairy Revenue Protection will provide several levels of insurance coverage based on the value of the farmer’s milk. One option will use manufacturing milk futures prices, and the other option would be based on the value of milk components, such as milkfat, protein and other milk solids. A majority of dairy farmers selling milk in the U.S. are paid based on the amount of milkfat and protein in their milk.

Other than those dairy pricing options, Dairy Revenue Protection coverage functions similarly to area-based crop revenue protection insurance policies. The coverage would offer revenue guarantees based on futures prices, expected production and market-implied risk. The premiums for coverage will be subsidized.

It is expected that Dairy Revenue Protection policies will be available in late summer in 2018.

Jim Mulhern, president of the National Milk Producers Federation, noted that USDA currently gives farmers the option of using either the Margin Protection Program (MPP) or the LGM program, but not both simultaneously, so "the elimination of the budget cap on LGM policy underwriting may make that program more attractive to larger-scale operations, as the support provided by MPP tapers offs for bigger herds. What’s more, the new risk management options that USDA is expected to introduce should create a menu of options that will likely be of particular interest to larger producers.”