Missouri Dairy Business Update  
Volume 8, Number 11
November 2008

Gross Margin Insurance available to Misouri Dairy Farmers

This year the USDA Risk Management Agency is sponsoring a new insurance product called Livestock Gross Margin (LGM) for Dairy. 

“LGM for Dairy” as it is called is an insurance policy that protects the gross margin between the market value of milk and the market value of feed.  It is targeted towards helping dairy farmers manage price risk.  

LGM for Dairy is available through crop insurance agents and FCS Financial.  However,  the insurance can only be purchased  on the third to last business day of the month.  On that day, dairy producers can lock in margins for up to 11 months into the future.

The prices used to calculate the insurable gross margin are based on prices offered by the Chicago Mercantile Exchange for milk and the Chicago Board of Trade for Corn and Soybean Meal. 
No matter what ration a dairyman is using, his feedstuffs are converted into tons of Corn and Soybean Meal equivalent for purposes of establishing the feed cost insurance.  A simple spreadsheet to assist dairy producers in estimating the monthly corn and soybean equivalent of their ration is available at:  http://future.aae.wisc.edu/lgm_dairy.html#2

A dairyman may  take out insurance on any amount of their milk production.  Because LGM Dairy  is a new product and not easily understood, dairymen should be encouraged to take out a policy one month for a tiny amount of milk and watch the performance of that contact over the next month.  
Taking out an insurance policy on one hundredweight of milk for one month would be a trivial expense for most dairy businesses.   

This “baby steps” approach may become an important learning tool for dairymen and their insurance agent learning to use the new insurance.

To learn more about LGM Dairy visit the RMA website at: http://www.rma.usda.gov/livestock/


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