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At the time of publishing, Q1 2024 indemnities have 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 the first quarter of 2024 averaged $0.98 per cwt, 13 cents less than the previous quarter. With producer premiums averaging $0.31 per cwt, the estimated average net to producers was $0.67 per cwt.
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Nearly 12.8 billion pounds of milk were covered under DRP during Q1 2024, representing 22% of the U.S. milk supply and marking the lowest volume enrolled since Q1 2020.
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Like in the previous quarter, most indemnities were paid based on lower Class III settlements. At the 95% coverage level using the class pricing option, Q1 2024 indemnities would have been triggered 99% of the time with Class III selected (ignoring Yield Adjustment Factors). This comes out to just four days that would not have triggered payments under Class III. Alternatively, Class IV prices finished higher than all available coverage offers, with no days triggering payments when ignoring Yield Adjustment Factors.
Coverage Performance by Horizon
Note: Class IV coverage wasn’t offered for Q1 2024 until February 10, 2023. Consequently, the coverage that was booked four and five quarters out mainly consisted of Class III.
Participation & Performance
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 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.
