Milk prices have been quite volatile since price support prices have been lowered. Sometimes prices have been quite high as in 1999 and sometimes quite low as in the late spring of 2000. Through the use of dairy options, producers can set a floor price for milk. Options are much like insurance in that when you buy them, you really hope that you will not need them. When you buy insurance on the pickup or bam, you surely do not hope to have a wreck or have the bam blown down.
Options do cost money and it is called a premium, just like insurance.
You can also buy different levels of insurance, with the higher levels costing more than the lower levels. With the DOPP program, milk producers are required to attend a training session which takes about 4 hours. You are also required to present evidence of the quantity of milk sold over a six month period during the past year. They will pay eighty percent of the premium cost of the options. Simply put, it is a very cheap way for a milk producer to learn how to use the options market.