Dairy Revenue Protection pricing model is built upon Federal Milk Marketing Order (FMMO) rules for milk and milk component prices. Due to a recent FMMO reform, RMA just issued, for the first time ever, two different set of actual DRP prices for the same calendar quarter. This blog post reviews the DRP rules in case there are FMMO changes.

In DRP Commodity Exchange Endorsement (DRP-CEE), the following rules are given regarding Class III and IV milk prices.

The Actual Class III Milk Price and Actual Class IV Milk Price will be the simple average of their respective monthly price data collected from the AMS, Market Information Branch, Announcement of Class and Component Prices for the months in the Quarter applying to the Quarterly Coverage Endorsement.

In simple English, actual milk prices always reflect the make allowances in effect on the day when each monthly price was published. For April-June, 2025, the prices published by AMS (monthly) and RMA (quarterly) were as follows:

Regardless of when the DRP endorsement for Q2 2025 was purchased, actual milk prices are the same.

With milk components (butterfat, protein, other solids, nonfat solids), DRP rules are different. From DRP-CEE:

Actual Butterfat Price, Actual Protein Price, Actual Nonfat Solids Price, and Actual Other Solids Price will be the simple average of their respective monthly price data collected from the AMS, Market Information Branch, Announcement of Class and Component Prices for the months in the Quarter applying to the Quarterly Coverage Endorsement; unless the formulas used in the current version of the Marketing Order Statistics Price Formulas report, found at https://www.ams.usda.gov/resources/price-formulas, change after the Sales Period. If report formulas change, Actual Butterfat Price, Actual Protein Price, Actual Nonfat Solids Price, and Actual Other Solids Price will be recalculated by us according to the associated AMS actual prices formulas that were in effect for the Sales Period during which you purchased coverage for the applicable Quarterly Coverage Endorsement.

On January 17, 2025, AMS published a new set of FMMO formulas in the Federal Register. To facilitate orderly DRP sales, on January 19, 2025, RMA published new ADM 835 record (FMMO Pricing Factor) with new FMMO formula coefficients and the new ADM 834 record (DRP Actual Prices) containing new AdmDrpActualPriceID keys for practices 803-808, corresponding to Q2 2025 through Q3 2026.

All DRP endorsements with component pricing option sold before January 20, 2025, are settled using “old” FMMO pricing formula coefficients, and all DRP endorsements with component pricing option sold on or after January 20, 2025 will be settled using actual component prices calculated based on the “new” FMMO pricing formula coefficients. On July 7, 2025, RMA published actual milk component prices for Q2 2025 under both set of coefficients:

Published actual milk component prices are calculated by applying old or new FMMO pricing factors to all three months in the quarter, disregarding the fact that new FMMO pricing factors started being used by AMS with June 2025 prices. To illustrate using butterfat price:

In practice, since FMMO reform was implemented with a month that is not the first month of the quarter, we suspended component option offers for Q2 2025 after January 19, 2025.

Another FMMO change is scheduled to be implemented starting with December 2025 – class price formulas will be updated to increase the protein test in skim milk from 3.1 to 3.3 lbs / skim cwt (2.9915 lbs / cwt to 3.1845 / cwt of standard milk with 3.5 lbs butterfat), and to increase other solids test in skim milk from 5.9 to 6.0 lbs / skim cwt (5.6935 lbs / cwt to 5.79 lbs / cwt of standard milk with 3.5 lbs butterfat). To reflect this change, DRP rules for RY2026 were updated and the other solids test in all component offers was increased from 5.7 lbs to 5.8 lbs. All component option endorsements purchased before July 1, 2025 will have other solids test of 5.7, and all endorsements purchased on or after July 1, 2025 will have other solids test of 5.8.