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At the time of publishing, Q4 2023 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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The final quarter of 2023 marked another period of strong indemnity payments. With 25% of the U.S. milk supply covered by DRP, estimated indemnities for the quarter averaged $1.11 per cwt, the fifth highest to date. This marks the fourth consecutive quarter of indemnity payments averaging over $1.00 per cwt.
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Most indemnities were paid based on lower Class III prices. At the 95% coverage level using the class pricing option, Q4 2023 indemnities would have been triggered 95% of the time with Class III selected (ignoring Yield Adjustment Factors). In contrast, Class IV prices finished with strength, settling near contract highs and causing zero available booking days to trigger payments at the 95% coverage level.
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For the entirety of 2023, indemnity payments averaged roughly $1.41 per cwt, generating the most revenue to producers in a single year since the program’s inception. Considering the premium cost, producers netted an average of $1.00 per cwt from DRP for 2023.
Coverage Performance by Horizon
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.
