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At the time of publishing, Q1 2026 indemnities had not yet been released by USDA-RMA. As such, the most recent quarter’s indemnity payments in this report are estimated using announced class and component prices and milk yields.
Overview & Key Points
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Estimated indemnities for Q1 2026 averaged $1.12/cwt, down $0.91/cwt from last quarter’s all-time high. After factoring in producer premium costs, which averaged $0.28/cwt, the estimated net return to producers was +$0.83/cwt.
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Roughly 16.1 billion pounds of milk were covered under DRP during Q1 2026, representing 27.5% of the US milk supply.
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Ignoring yield adjustment factors (YAFs), both Class III and Class IV class pricing endorsements would have triggered indemnities in Q1 2026, particularly for Class III. Class III prices settled below the 95% coverage level on 213 out of 228 days (93% of the time), while Class IV prices settled below the 95% coverage level on 128 out of 190 days (67% of the time).
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Research on the DRP program has shown that proactively securing coverage three to four quarters out often results in the highest net return, and this quarter was no different. Coverage secured three quarters out resulted in the highest average net return of $1.53/cwt (indemnity less producer premium). Four quarters and five quarters out offered the next highest returns at $1.37/cwt and $1.28/cwt, respectively. Despite returning the most to producers, coverage booked between three and five quarters out only accounted for 19% of the DRP coverage secured for Q1 2026. While producers booking coverage one quarter out saved $0.20/cwt on premium rates compared to those securing three quarters out, they lost out on almost $1.50/cwt of indemnity. This highlights the importance of proactively securing coverage earlier, even when premiums are higher.
Coverage Performance by Horizon
Note: Q1 2026 Class III coverage was not offered until November 26, 2024 (over two months into nearby index 5), while Class IV coverage was not offered until February 3, 2025 (roughly halfway into nearby index 4).
Participation and Performance
Impact of Yield Adjustments
The Yield Adjustment Factor (YAF) is calculated as the state or pooled production region’s actual yield released in USDA’s Milk Production report divided by the expected yield at the time of coverage. The YAF can have a positive or negative impact on indemnity payments:
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YAF > 1: When the actual yield is greater than the expected yield, the potential indemnity is reduced.
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YAF < 1: When the actual yield is less than the expected yield, the potential indemnity is enhanced.
Net to producers is equal to the indemnity paid minus the producer premium. Effective covered milk production is equal to the declared production times the protection factor. Class III versus IV coverage is calculated as the effective covered milk production times the class price weighting factor or the component price weighting factor.
Disclaimer: HighGround Insurance Group (HGIG) is an agency affiliated with HighGround Dairy (HGD). HGIG is a licensed insurance agency in many US states. HighGround Dairy is a division of HighGround Trading (HGT), an Introducing Broker (IB) registered under United States Laws. Nothing contained herein shall be construed as a recommendation to buy or sell commodity futures or options on futures. This communication is intended for the sole use of the intended recipient. Futures and options trading involves substantial risk and is not suitable for all investors. Past performance is not necessarily indicative of future results.
