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At the time of publishing, Q2 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 second quarter of 2024 averaged just over $0.01/cwt, down $0.98 from the previous quarter. With producer premiums averaging $0.35/cwt, the estimated average net to producers was a loss of $0.34/cwt. Indemnities were significantly lower than last quarter, as milk prices improved. Particularly, Class III rose $4.37/cwt from April to June 2024.
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Roughly 13 billion pounds of milk were covered under DRP during Q2 2024, representing 23% of the U.S. milk supply.
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Nearly all indemnities were from endorsements covering Class III milk. While milk prices have continued to improve in recent months, April’s Class III price of $15.50/cwt lowered Class III’s quarterly average price for Q2 2024 to $17.97/cwt, triggering some indemnities. Overall, 5.9% of milk production effectively covered for the quarter was indemnified, with 99.8% of that coming from Class III options.
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At the 95% coverage level using the class pricing option, Q2 2024 indemnities would have been triggered on 21 available DRP days (7.8%) with Class III selected (ignoring Yield Adjustment Factors). Conversely, Class IV prices at the 95% coverage level and class pricing option finished higher than the 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 Q2 2024 until April 17, 2023. Consequently, the coverage 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 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.
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