An agent asked me recently:

If a customer buys class III DRP endorsement, and then wants to sell cheese puts does the legal language apply to that as well in regards to waiting five days and also the 80%?  He’s looking to sell cheese puts a dollar to $1.50 below the DRP.

Section 24 of the Dairy Revenue Protection Basic Provisions states:

(a) Unless the producer can demonstrate a clear and inadvertent error, the following practices are presumed to be subsidy capture, and are in violation of section 3(l):
(1) If you buy a QCE and also open a new short put option on the relevant dairy futures contract, such that:
(i) The put option contract month is within the quarterly insurance period;
(ii) The put option is sold within 2 trading days before or 5 trading days after the QCE
effective date; and

(iii) At the time you sold the put option, the option premium (per cwt) was greater than 80 percent of your QCE premium.

The key phrase here is relevant dairy futures contract. In case of a Class III endorsement, the language does not restrict the presumption of subsidy capture to writing Class III puts. Cheese and Class III price are tied together through the Class III milk price formula, which for December 2025 and subsequent months has the following parameters:

The correlation between monthly Class III Milk Price and Cheese Price over 2000-2025 period has been 0.97.

Therefore, in the context of DRP BP Sec. 24(a)(1), cheese futures are a relevant dairy futures contract for Class III endorsements, and if the producer shorts a cheese put with sufficiently high premium per pound, during the 5 day waiting period, then 24(a)(1) applies and such action will be presumed to be done in pursuit of subsidy capture.

Per currently valid formulas for 2026, to assess if the strategy violates 24(a)(1)(iii), multiply the premium per lb on a short cheese put by 10.3246. For example, if January 2026 cheese put premium is $0.045 for $1.50/lb strike, that would be an equivalent of $0.4646/cwt. Or, working backwards: If DRP premium for Q1 2026 is $0.1954/cwt, then 80% is $0.1563. Converted to cheese put premium equivalent: $0.1563/10.3246 = $0.0151/lb. On November 17, 2025, $1.40/lb put premium was $0.013, and that was the highest strike for which 24(a)(1)(iii) would not be violated. $1.425/lb put premium was $0.019, which exceeds the 80% rule.