Advice for my dad if he were a dairy farmer

I GREW up on a sheep ranch you don’t incorporate Dairy-RP into in Utah before leaving to work in your business plan, odds are you Washington, D.C., where I oversaw may regret it. Margins are too tight many of USDA’s farm programs. and markets are too volatile to man- Before my dad’s passing a few years age risk like yesteryear. Skeptical? ago, we talked most days and, while Run the numbers yourself and see I no longer worked on the ranch, how it would have done. the one area I could help out was Insure far in advance — It to advise him on USDA’s different costs more to insure the months programs and offer insights. When I advised my dad, I cut to the chase and told him what he needed to know, not always what he wanted to hear. My only goal was to help him be as profitable as he could be.

Typically, I recommended he utilize USDA’s programs, but not always. Some programs had too many strings attached to be worth his time. As I visit with dairy pro- ducers about USDA’s new Dairy Revenue Protection insurance (Dairy-RP), I often think of my dad, and I wonder if anybody is offering dairy producers the candid advice they need in today’s challenging market, even if it isn’t what they want to hear.

After reflecting on what I have heard from many dairy producers, and recalling what I learned from overseeing USDA’s insurance pro- grams, here is what I would say, “If my dad were a dairy farmer.”

Don’t try to outguess the mar- ket — Nobody drops their farm’s liability coverage because their gut tells them there won’t be any mis-haps next year. It would be unheard of to carry auto insurance for the second half of the year, but not the first half — just on a gut feeling that no accidents will happen the first half of the year.

The same applies to Dairy-RP, an insurance product that estab- lishes a floor on revenue. The smart way to utilize Dairy-RP is to con- tinuously keep a floor under milk revenue by purchasing on a set schedule without trying to pre- dict where milk prices are headed. Attempting to outguess the market is a fool’s errand.

Stay in it for the long run — Dairy-RP pays when revenue drops unexpectedly, which, it turns out happens a lot. However, judging this program by how it works over a short period isn’t smart.

Historical analysis demonstrates Dairy-RP is a good deal over the long term, so establish a long-term plan and stick with it. Budget the cost to insure the furthest quarter out as soon as coverage is available. Think five years, not five months.

Dairy-RP is a game changer — Not all historical USDA dairy pro- grams have worked well, especially for mid to large-sized dairies. But if  you don’t incorporate Dairy-RP into your business plan, odds are you may regret it. Margins are too tight and markets are too volatile to man-age risk like yesteryear. Skeptical? Run the numbers yourself and see how it would have done.

Insure far in advance — It costs more to insure the months farthest in the future. But estab-lishing a floor up to or beyond a year in advance provides peace of mind and helps budget even as markets fluctuate. My analy-sis indicates that insuring far in advance is superior to insuring near term months.

Find yourself a good agent — Find an agent who can explain Dairy-RP inside and out, answers all of your questions, and is respon-sive. Dairy-RP should be around for a long time, unlike farm bill programs, it doesn’t expire in five years. So be picky, and find an agent you can work with over the long run.