Using the Dairy Options Pilot Program with Forward Contracts

The USDA recently expanded the Dairy Options Pilot Program (DOPP) in South Dakota. DOPP subsidizes the purchase price of put options in an effort to encourage dairy producers to manage their downside price risk. Many South Dakota producers have already chosen to manage their price risk by entering into cash forward contracts with processors. This strategy eliminates downside risk, but it also limits returns should prices move higher. It may be possible, however, for producers with forward contracts to benefit from DOPP and higher prices under the right circumstances