DRP: Five Years in Review

DRP: Five Years in Review

Key Takeaways:

  • Over the past five years, DRP resulted in a positive net benefit to producers, averaging $0.23/cwt after considering premiums. While the goal of DRP is to lock in prices to guarantee a steady margin, producers, on average, profited from utilizing DRP coverage. For every $1.00 spent on DRP, producers have received $1.78 in return.

  • A large portion of the production covered under DRP was secured during the quarter closest to the coverage period. While the premiums are lower during this time, the average indemnity payment and net to producer are also lower. In contrast, coverage booked during the third quarter out, despite the higher premiums, resulted in the greatest average indemnity payment and net to producer of any of the periods to obtain coverage.


Dairy Revenue Protection (DRP) is a voluntary insurance program that allows producers to lock in quarterly milk prices using CME futures, with the government paying a portion of the premium. Introduced in 2018, DRP coverage became available starting in the first quarter of 2019. As final quarter 2023 claims have become finalized, let’s look back at the past five years under the DRP program.

Lifetime Returns

From the first quarter of 2019 to the final quarter of 2023, producers paid roughly $883 million in premiums and received approximately $1.57 billion in indemnity payments. On a per hundredweight (cwt) basis, the average premium cost dairy producers $0.30 per cwt, and the average indemnity producers received was $0.53 per cwt. While the goal of DRP is to lock in prices to guarantee a steady margin, producers, on average, profited from utilizing DRP coverage. For every $1.00 spent on DRP, producers have received $1.78 in return.

Performance Over Time

Despite a slow start to DRP indemnities in the first year of the program, producers using DRP over the past five years have seen profitable returns. Figure 1 shows the average indemnity payments and share of the U.S. milk supply under DRP coverage. DRP enabled producers to maintain positive profit for their operations during volatile periods, namely in 2020 and 2023. For example, while the COVID-19 pandemic caused many disruptions across the globe, DRP coverage mitigated losses for dairy producers. In Q2 2020, producers received a total of $249 million after deducting premiums, resulting in an average of $1.66 per cwt more than those who did not participate in the program. Furthermore, record-high milk prices in 2022 led to strong futures prices available to secure using DRP the following year. In 2023, DRP returned $1.00 per cwt to producers after considering premiums. The highest average indemnity payments on a per cwt basis were observed in Q2 2023, averaging $1.84 per cwt. Interestingly, excluding the first year of the program, 2023 recorded the lowest participation in DRP based on volume.

Figures 2 and 3 portray DRP performance for the Class III and Class IV pricing options. The areas shaded in blue show the range of possible outcomes of DRP coverage based on all days available for booking, ignoring Yield Adjustment Factors (YAF). The black lines show the actual announced Class III or IV price by quarter, while the brown dotted lines show the weighted average price captured by DRP. Both figures show the benefits of DRP coverage. DRP allows producers to protect their downside risk with the largest loss in DRP coverage being simply the premium. Additionally, locking in that price produces a large upside to producers in times of price declines. Especially seen in Figure 3 depicting the Class IV benefits, producers who used DRP coverage to lock in 2020 prices did much better on average than those who did nothing.

Figure 4 shows the net to producers by percentile for DRP coverage from 2019 to 2023. While DRP losses are seen up to the 70th percentile, DRP has an unequal distribution of returns. DRP benefits can be massive, with the largest single endorsement reaching above $6.00 per cwt. DRP may not pay out the astronomical amounts seen in the right side of the figure every time, but the size of the indemnity payments during poor-performing periods of the dairy market can outweigh the frequency.

Performance by Horizon

DRP coverage can be booked up to five quarters in advance. Although premiums are generally lower for the closest quarter, it typically yields the smallest indemnity payment. Figure 5 depicts the average indemnity payments and producer premiums based on the number of quarters coverage is booked out over the past five years. Despite offering the lowest average premium to producers, booking coverage one quarter out resulted in the lowest average indemnity payment and consequently the lowest net benefit to producers at $0.14 per cwt. Conversely, booking coverage three quarters out, despite having the highest average premium, led to the highest average indemnity payment and resulted in the greatest net benefit to producers at $0.30 per cwt. Interestingly, even though the nearest quarter resulted in the lowest average net benefit to producers, it accounted for the greatest share of volume covered. Between 2019 and 2023, 35% of the volume covered under DRP was booked in the first quarter out, whereas only 20% of production was covered in the third quarter out. While the first quarter out has less risk and hence a lower premium, lower risk results in lower reward.

Note that a benefit of the DRP program is that producers don’t have to pay the premium until claims are determined. If claims are submitted quickly, producers only write a check if the indemnity payment is less than their premium amount; otherwise, the premium is deducted from their indemnity. Moreover, at the time producers are required to pay the premium amount, their milk checks for the covered milk have already been received.

Participation by State

Over the past five years, producers have covered nearly 300 billion pounds of milk, representing 27% of the total U.S. milk supply. While more than a quarter of production was covered throughout the U.S., the share differs by state. Figures 6 and 7 below depict milk production effectively covered under DRP by state from 2019 to 2023. Texas and Colorado accounted for the greatest shares of production covered with DRP at 36.6% and 36.4%, respectively. Rounding out the top five were South Dakota (33.3%), Idaho (30%), and Arizona (28.8%).  Although California covered the largest quantity of milk over the period, its share of total production was 26.5%, slightly below the U.S. average and ranking eighth amongst the top 24 milk-producing states.

Impact of Yield Adjustments

Yield Adjustment Factors (YAF) can have a significant impact on indemnity payments. The YAF is calculated as the actual yield released in USDA’s Milk Production report divided by the expected yield at the time of coverage. Thus, when the YAF is greater than 1, the indemnity payment is lower, and when the YAF is less than 1, the indemnity payment is higher. Both the actual and expected yields vary by state.

The table below depicts the average YAF for the top ten milk-producing states by release period. A release period of 1 indicates the earliest release of the expected yield for a state. Expected yields are typically updated seven to eight times per quarterly insurance period. The average YAF in the table are simple averages of all quarters for each state. As depicted in the table, YAF have most commonly been less than 1, adding value to the indemnity payment. While there is no perfect way to predict the YAF, it’s important to know it may play a part in adjusting indemnities paid out.


DRP is a useful tool for dairy producers who are looking to protect a positive margin. Although it doesn’t pay out every time, DRP allows producers to maintain profitability during depressed or volatile price periods. Building a robust risk management plan for DRP coverage demands a consistent, proactive approach to ensure success. Contact us today to learn more about how to utilize DRP effectively on your operation.


At the time of publication, Q4 2023 indemnities had not yet been released by USDA-RMA. In this report, indemnities for that quarter were estimated based on announced class and component prices and milk yields.

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.