At the time of publishing, Q1 2025 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
- Estimated indemnities for Q1 2025 averaged $0.13/cwt. After factoring in producer premiums, which averaged $0.31/cwt, the estimated net return to producers was -$0.18/cwt.
- Nearly 18.9 billion pounds of milk were covered under DRP during Q1 2025, representing 33% of the U.S. milk supply.
- If ignoring yield adjustment factors (YAF), indemnities for Q1 2025 would trigger Class IV endorsements only. Out of the 191 days Class IV coverage was available, the expected Class IV price at the 95% coverage level exceeded the final settlement on 105 days, representing 55% of the time.
Coverage Performance by Horizon
Note: Class IV coverage was not offered for Q1 2025 until January 26, 2024 (just over a month 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:
- YAF > 1: When the actual yield is greater than the expected yield, the potential indemnity is reduced.
- 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.
