Dairy Options Pilot Program

 

The purpose of the Dairy Options Pilot Program (DOPP) is to educate dairy producers in the use of options contracts as risk management tools and to ascertain the usefulness of options to dairy producers in various regional markets.

Deleted 10/11/2010 (Archived.) 10.454 Agency: Department of Agriculture
Office: Risk Management Agency Direct Payments for Specified Use. In DOPP Round I, 1,450 dairy producers were trained; 428 of those dairy producers bought 1,700 milk put options. During DOPP Round II, 1,226 dairy producers were trained; 129 of those dairy producers bought 310 milk put options due to low prices. An increased number of dairy producers attended training during Round III; 790 of those dairy producers bought 2,816 milk put options. Federal Agriculture Improvement and Reform Act of 1996, Title I; Agricultural Market Transition Act, Subtitle H, Public Law 104-127; Agricultural Risk Protection Act of 2000, Public Law 106-224. To be eligible for any benefits under this program, applicants must be dairy farmers (i.e., an individual, entity, or joint operation, which as owner, operator, landlord, tenant, or sharecropper is entitled to share in the production available for marketing from the dairy farm, or share in the proceeds thereof) who: (1) Are eligible for a production flexibility contract, a marketing assistance loan or any other assistance under Title I of the Federal Agriculture Improvement and Reform Act of 1996; (2) volunteer to participate in this program; (3) operate a dairy farm located in a county selected for the pilot program; and (4) have documented production history of at least 100,000 pounds of production over any consecutive 6-month period during the most recent 12 months. Dairy farmers. Dairy farmers must certify that they are eligible for the DOPP and that their farm produced at least 100,000 pounds of milk over a consecutive 6-month period during the most recent 12 months. The DOPP application and participation agreement materials include Form CCC-320 and a brochure explaining DOPP, along with instructions. Consultation or assistance is available from RMA and from extension agents to aid in preparing these forms. No informal preapplication consultation is necessary. This program is excluded from coverage under E.O. 12372. The DOPP application materials will be mailed to producers in counties where the program operates. Each round of the program will last up to 12 months for each participant and operate for up to 3 years in each pilot county. Farmers have one month after the county official training date to return their signed application and a copy of their production records to RMA. Farmers should expect a response within 3 weeks of RMA's receipt of their applications. None. None. Not applicable. Funds will be used to share the cost of premium for 'put' options purchased by DOPP participants and for a portion of the brokers' fees to conduct and execute transactions. Funds may be used to purchase only 'put' options on milk futures contracts. Other discretionary expenses will be incurred by RMA to operate the program such as those associated with the DOPP's required training sessions. None. RMA's Office of Risk Compliance will conduct random audits of participating producers' and brokers' trading activity to verify compliance with the DOPP agreements. None. The program has no statutory formula. The proposed cost-sharing arrangement between RMA and participating dairy farmers calls for RMA to pay for 80 percent of premiums and up to $30 in broker fees for each options contract purchased under the DOPP. The farmer pays for 20 percent of the premium and any broker fees in excess of $30 per contract. This program has no matching requirements for State and local governments. This assistance is available to farmers in selected counties from the date application materials are mailed to farmers in those counties until all options have been liquidated. All DOPP options must be purchased within 4 months of the date of the training session in each county. The assistance is paid to the farmer's broker on behalf of the farmer on a transaction-by- transaction basis. Not applicable. Risk Management Agency, Stop #0808, 1400 Independence Avenue, SW., Washington, DC 20250. Contact: Lee Ziegler, Telephone: (202) 690-0520. Fax: (202) 690-3605. E-mail: rma.options@wdc.usda.gov. http://www.rma.usda.gov. 12-4336-0-3-351. (Direct payments) FY 07 $0; FY 08 est not available; and FY 09 est not reported. None. Brochure - "Got Options? Announcing the Dairy Options Pilot Program". The program was operated to fund milk put options purchases for dairy producers in 38 counties in a total of seven States during the original Round of DOPP (Round I). The program operated between 6 to 8 months in each State. For Round II, the program was expanded to include 61 new counties and included a total of 32 States. None of the original (Round I) counties were chosen to participate in Round II of the program. DOPP Round III was piloted in 275 counties and 39 states during FY 2001. An additional 25 counties were chosen by the Secretary of Agriculture for implementation during FY 2002. Counties from Rounds I, II, and III are included in the 300 total counties in 40 states during FY 2002 because DOPP will continue to operate in these counties, as directed by Congress.