Strong beef prices have become one of the biggest contributors to dairy farm profitability, and industry analysts say protecting that revenue stream may deserve more attention as milk prices soften.
During a recent I-29 Moo University webinar, Ron Mortensen of Dairy Gross Margins and Curtis Bosma of HighGround Dairy broke down significant changes to Livestock Risk Protection (LRP) programs covering cull cows, unborn calves and beef-on-dairy drop calves.
Cull Cow Coverage Expands to a Full Year
One of the biggest changes is in the cull cow LRP program. Coverage currently runs 13 weeks but will expand to 52 weeks beginning July 1. This change gives producers a longer planning horizon for price protection tied to beef markets.
Mortensen says the structure remains similar to crop insurance.
“This program has evolved out of Iowa State University,” he says. “It’s USDA RMA-backed and is very similar to those of you who use crop insurance programs.”
Coverage levels also remain unchanged in structure, but subsidy design continues to favor higher protection levels.
“At 100% coverage level, it’s a 35% subsidy,” Mortensen says. “At the 92.5% coverage level, it does change to 40%.”
He says most users tend to focus near the top end of coverage.
“I always think the sweet spots here from 40 to 92% up to 100,” he says.
Pricing Mechanics Tied to Feeder Cattle Futures
Cull cow pricing is not tied directly to dairy markets but instead to feeder cattle futures with adjustment factors. Mortensen says the pricing model is largely invisible to producers.
“It is a black box,” he says. “It’s the feeder cattle prices times the factor.”
The program also includes restrictions around trading days and market disruptions.
“If there’s a limit up or limit down move, or a report day or holiday, trading is paused — we’ve seen all of those situations recently,” Mortenson says. “The data we get is slightly delayed, but it’s still the most current information available.”
Weight ranges are also expanding. Cull cows currently cover 800 to 1,700 lbs. but will move to 1,800 lbs. in July.
Drop Calf and Unborn Calf Coverage Expands Options
The unborn calf and drop calf program is also seeing expansion, especially for beef-on-dairy systems. Currently, coverage applies to calves up to 99 lbs. or approximately two-week-old drop calves.
“These are being removed from the herd and marketed for slaughter as beef,” Mortensen says. “Whether sold direct for slaughter or placed on feed prior to slaughter.”
A major requirement is genetics.
“These cattle need to be 50% beef,” he says. “It has to be a dairy hosting cow and a semen from a beef animal.”
For now, dairy-on-dairy calves are not eligible.
“Today and for at least another year, that’s the kind of program this will be,” Mortensen says.
Coverage length is also expanding.
“It is similar to buying a put,” he says. “We’re going from 13 weeks out to 43-week coverage.”
Premiums vary widely based on coverage levels. Mortensen shared examples showing approximately $10 per head at 92.5% coverage and around $34 per head at 100% coverage for drop calves.
New Feeder Cattle Adjustments Improve Flexibility
Beginning July 1, additional changes will affect how feeder cattle are valued under LRP programs tied to dairy animals.
Previously, a flat 50% factor was used for dairy feeder cattle. Mortensen says that is changing.
“Previously, dairy feeder cattle were assigned a flat 50% adjustment factor,” Mortenson says. “Now that’s changing. Lighter calves (100–600 lb) will use a higher adjustment range of 125–141% of the feeder cattle index, while heavier calves (600–900 lb) will use a lower range of 75–81%, reflecting how differently those weight classes track the market.”
He says the goal is to better reflect real market dynamics as beef-on-dairy systems continue expanding.
Beef Revenue Becomes a Bigger Margin Driver
For many dairy operations, these insurance tools are gaining traction because beef revenue has become a major share of profitability.
Bosma says the numbers are difficult to ignore.
“If we standardize that back to a per hundredweight of milk, beef revenue is almost $5 a hundredweight,” he says. “In some cases, it could even be greater than that.”
That shift has forced a rethink of how dairy margins are modeled. Historically, non-milk income was minimal.
“Those were never going to exceed a dollar or a dollar fifty per hundredweight,” Bosma says. “But when beef prices started climbing, that fixed assumption became very irrelevant and inaccurate.”
Low-cost Protection for a Growing Revenue Stream
Bosma says one of the most striking features of the program is its cost structure relative to value insured.
“Producer premium against the trigger price is basically 2% to 4% of the value of the animal,” he says. “If you’re okay living on 96% to 98% of your calf revenue, it becomes a much easier equation.”
He adds that the beef side of the dairy checkbook is now too large to ignore.
“If beef revenues were to drastically decline, that’s kind of the only thing keeping cash flows intact,” Bosma says.
Risk Management Becomes a Long-Term Business Strategy
Both Bosma and Mortensen emphasized that livestock insurance is no longer a one-off marketing decision but part of long-term financial planning.
“I think this risk management stuff really falls into that strategic category,” Bosma says. “People that consistently do this tend to have rock-solid balance sheets.”
Mortensen adds that lenders are increasingly supportive of participation.
“It takes the valleys and the peaks out of the whole program,” he says. “Even if you did 70% of your production under these programs, over time you’re going to be the winner.”
As beef-on-dairy revenue continues to anchor dairy profitability, new USDA insurance options are giving producers another tool to manage volatility — and protect a revenue stream that is now central to the modern dairy balance sheet.
