Dairy Revenue Over Feed FAQs

Frequently Asked Questions:

Q: ROF, ROFL, ROF+, ROFL+, What do all of these mean?

A: ROF: Revenue Over Feed. A program where producers can buy efficiently and effectively manage their risk by selling a ceiling and buying a floor. ROF formula = milk-corn-soybean meal.

ROFL: Revenue Over Feed Lite. A program where producers can efficiently and effectively manage their risk by selling a ceiling and buying a floor. ROFL formula = milk-soybean meal.

ROF+: Revenue Over Feed Plus. A program where a producer can sell a call that pairs with their MPP floor.

ROFL+: Revenue Over Feed Lite Plus. A program for producers who grow their own silage and forages where a producer can sell a ceiling that pairs with their MPP floor. ROF formula = milk-soybean meal.

Q: What are the benefits to a production operation?

A: This approach simplifies the trading and saves producers from being troubled with exchange margin calls. CSC handles all the future trading and the margining so you don’t have to.

Q: What prices are used to calculate and settle ROF/ROFL?

A: The milk price is the final settlement price of class III milk for each contracted month.

The CME futures prices of corn and soybean meal are used to calculate the feed portion of ROF. The nearest futures contract for each month is used. The feed prices used for settlement are the closing prices on the day preceding the month in which ROF/ROFL is contracted.

Example:
January 2016 ROF used the March corn contract price and the March soymeal price as settled on December 31st 2015, along with the January Class III final settlement price on February 3rd.

Q: When do the Revenue Over Feed Options settle? When will I get paid?

A: ROF and ROFL settle at the end of each contract month, with the settlement being reflected in your milk check.

Q: ROF or ROFL, which program is right for me?

A: Revenue Over Feed is our general program. It is designed for producers who are buying feed, corn and soybean meal, and selling milk. Revenue Over Feed Lite is our program designed specifically for Midwest-based dairies who grow their own corn and forages. These producers don’t need to hedge their feed using the markets because they grow it themselves. The ROFL formula takes this into consideration.

Q: I have a small dairy, can I still use ROF or ROFL?

A: Yes, we offer a minimum contract size of 25,000 lbs of milk to give small producers the same hedging efficiency that is usually only available to larger producers using different hedging tools.

ROFL Specific Questions:

Q: When do the Revenue Over Feed Plus options settle? When will I get paid?

A: ROF+ settles at the end of each contract month and payment will be issued the following month.

Q: What prices are used to calculate and settle Revenue Over Feed Plus?

A: CSC Arbitrage Group’s own Revenue Over Feed formula is used to calculate the ROF+ number used in settlements. The feed portion, corn and soybean meal, prices used for settlement are the CME closing prices on the day preceding the month in which ROF+ is contracted. The milk price used is the final settlement price of Class III milk for each contracted month. The ROF settlement is similar to the MPP settlement over time.

Q: What about dairies that grow their own silage and forages? 

A:For dairies that grow their own forage, we offer Revenue Over Feed Lite Plus (ROFL+). ROFL is calculated with this formula ROFL= Milk – Feed Protein . These producers have already “hedged” the forage portion of the ration by producing it so there is no need to hedge it again using the markets. For these producers, the program works exactly the same way as ROF+ but the numbers are slightly higher since the forage component of the ration is not included. For ROFL+ producers can establish a ceiling at $12/cwt or $13/cwt. The option premium prices are updated daily on our Revenue Over Feed Markets page.

Q: How much can I hedge? 

A: Producers can hedge the production of 1 cow to 2,000 cows up to a maximum of 50% of expected production, in 250 cwt units.

Q: How is this service being offered? 

A: This is a service from CSC Arbitrage Group, which specializes in trading agricultural products. Revenue Over Feed Plus is not offered through the United States Department of Agriculture.

Q: What should I do next?

A: Contact one of our Risk Management Consultants to discuss your situation and goals. Or if you prefer to learn a little more on your own, first, consider taking a look at some of our educational resources:

1. Review our Glossary
2. Read our Dairy Hedging Articles
3. Watch our Video Lessons