MMA Blog

Dairy Revenue Protection Program in the Face of COVID-19

When the Dairy Revenue Protection Program rolled out in 2018, no one could have foreseen the impact COVID-19 would have on the market. As time goes on, dairy farmers who locked in prices early are already seeing program payouts that will help close the revenue gap.

 

Government Help from a Short-Term Food Box

In the past six months, dairy prices have slid to lows not seen in more than a decade, with April and May bringing in $12 milk prices. The USDA's Farmers to Families Food Box program stepped in to provide many farmers relief from low prices. Announced in mid-April 2020, in the initial assessment, $3 billion were to be distributed over several months. In practice, however, hundreds of millions were spent in just 45 days.

The result was record-breaking prices on cheese and $20 milk prices. The quick response of the federal government helped prices rebound and provided relief to many during Q2, but during these unprecedented times of closures, bankruptcy and a new normal for dairy customers around the globe, it is unclear what will happen next. The Food Box program is slated to end on June 30, 2020. From the elementary school down the street to international exports, we don't know what the market may look like in September, much less the end of the year.

 

Dairy-RP for the Long Haul

When Dairy-RP was rolled out as a stopgap against sliding dairy prices, a global pandemic was likely not at the top of the list of scenarios anyone expected. Along the way, many of the industry's best customers saw their businesses shuttered, schools moved to remote platforms, and the supply chain was broken. These incredibly challenging times were made more difficult by the uncertainty surrounding the future of the market.

Although it can be difficult to find a bright spot right now, thankfully many of our dairy customers were able to lock in prices through Dairy-RP. Those mid-sized dairies of 1,000-2,500 head of cattle are going to receive program payments ranging from $200,000-$500,000 in the coming weeks. Another new client in Idaho chose to lock in prices just last week on his two herds of dairy cattle totaling over 8,000 head.

 

What Do You Need to Keep Running?

With Dairy-RP, we can look at the market and make those investments against the many "what if” scenarios. We have discussions about the potential benefits of Dairy-RP, understanding that an investment of $0.30 per hundred could prevent a loss of $3 per hundred weight. Understanding your break-even point and cost structure helps us zero-in on the right strategy to protect your dairy’s finances.

During the pandemic and fallout, the Dairy-RP program was a safety net for many dairies. With Dairy-RP, the risk management concept is paying off well for those who invested early. As prices rise from the USDA assistance program, those who want to lock in their future pricing should consider reaching out to their risk management adviser to help run the numbers and develop projections. Working with dairies throughout the west to complete risk assessments in our new environment, we are evaluating strategies to prepare for what the balance of 2020 and 2021 may bring. It's our hope that we are moving towards a more positive market, but we are keeping a careful eye to prepare for continued volatility.

 

Contact Tyson

 

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