The recent launch of the Dairy Revenue Protection (DRP) program is giving dairy farmers new opportunities to provide a safety net FOR their operations. The program, offered through crop insurance providers and facilitated through the RMA, is gaining popularity as farmers look for ways to protect a positive margin.
The DRP offers producers flexibility in determining the level of coverage they need along with the customization to tailor it to component pricing or utilization (Class III or IV).
“Having a way to customize the plan for each producer gives the DRP potential to be a powerful tool, but it also requires farmers to be strategic in how they use it, incorporating it with other marketing plans and overall farm management,” says Robert Netrefa, crop insurance specialist with GreenStone Farm Credit Services.
Robert has been working with dairy farmers throughout northeast Wisconsin to help them capture the opportunities available through DRP. Helping the farmers understand how the program can give a new level of protection to their margins is part of the education process.
“We want farmers to use the DRP to protect their profitability, not necessarily hit the highest point in themarket,” Robert says. “This tool is designed as an insurance policy – protection of the farm’s revenue – and as such, like most insurance policies we hope we can capture the maximum in the market and not rely on the insurance. But if the market drops, we want farmers to have a floor under their revenue.”
For GreenStone member Cory Rohan, using the DRP to protect his margins gives him an added level of confidence when determining his financial plan for the year. Cory, and his father, Tom, work with an agricultural business consulting team to develop a yearly budget and cost projections. The detailed budget the Rohans create each year made enrolling in the DRP program an easy decision.
“We work to make our budgets as accurate as possible, drilling down to the greatest detail we can,” Cory says. “We look at all our costs like feed, vet costs and labor on a per cow basis so we can compare our costs to other farms in our area.”
The Rohans milk 750 cows on their family dairy farm in Bear Creek, Wisconsin. Cory is the third generation to manage the farm. Since returning to the farm after college, he and his father have worked to streamline operations and take a critical look at all aspects of the farm to operate as efficiently as possible. Working with a financial consultant provides them insight into how they compare to neighboring farms.
“We want to know why things are they way they are,” Cory says. “If our feed costs are higher, or we have higher vet costs, we look into it to see where we can make changes and improve.”
Having an accurate cost of production gives Cory the information he needs to make informed decisions when enrolling in DRP, enabling him to protect a margin.
“Knowing our breakeven cost of production, I was able to select the levels throughout 2019 that protect our margins,” Cory says. “Without knowing our costs, we wouldn’t know the levels to cover.”
Like other insurance policies he buys, Cory hopes he does not have to make a claim on the DRP, but he has the assurance that if markets go lower, he is covered.
“We don’t buy insurance on our barns hoping they will burn down,” Cory says. “We look at DRP the same way. We did not look to lock in the highest prices, but rather to cover our cost of production. We hope market prices are higher and we do not collect any money from DRP.”
The Rohans, like most farmers enrolled in DRP, are incorporating the program into their overall farm management plan. Having accurate records, along with the proper insurance programs, can provide an added level of certainty in uncertain times.
“It is a pleasure to work with Tom and Cory,” says Dan Gitter, GreenStone VP of Commercial Lending in Little Chute, Wisconsin. “They do an excellent job of providing us with good information and have a deep understanding of their current and projected financial position.”
For more information on DRP, contact your local GreenStone crop insurance specialist or visit www.greenstonefcs.com
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