DAIRY GROSS MARGINS PROTECTION (income minus feed costs) - Enrollment Period - November 30 – December 1, 2012
Indemnity opportunities were present when Actual Margin (heavy black line) was below the Expected Gross Margin Guarantee, providing producer’s enrollment period was for such periods of time (chart courtesy of K. Powell, PDA).
Livestock Gross Margin for Dairy Cattle (LGM-Dairy) funding allocation has initially established for the new fiscal year and an enrollment period is expected to be announced to begin November 30-December 1, 2012. To get details for your farm contact a crop insurance sales/service agent well before this date.
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LGM Dairy Gross Margin (income over feed cost) Insurance (PDA)
The program is based on milk income over feed costs, which the program calls a “gross margin.” The insurance program covers the difference between the expected gross margin (insurance guarantee) and the actual gross margin for the producer’s selected months, based on a targeted amount of milk. Futures prices from the Chicago Mercantile Exchange (CME) are used to determine the values of Class III milk, corn and soybean meal. Futures prices result in uniform commodity prices for all producers. There is a maximum producer enrollment limit of 240,000 cwts of milk per year.
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Key Definitions:
The expected gross margin is calculated by using the amount of milk (cwt) the producer chooses to enroll times the futures prices for the milk and feed to be fed for the selected month(s). The expected gross margin is the difference between the values of milk minus the feed cost.
The actual gross margin is calculated for the same time
period as the expected gross margin. The calculations are done using the same methodology as was used to calculate the expected gross margin.
An insurance indemnity (loss payment) results when the expected gross margin exceeds the actual gross margin. Deductibles are available from $0 to $2 per cwt, in $0.10 intervals. Indemnities are paid within 60 days after the last month insured (after the claim can be calculated), in the chart below, payments could have occurred December through July if any of these months had been selected as the months for which insurance protection was purchased.
How Dairy LGM Works
Cause of loss covered is the difference between the expected gross margin (insurance guarantee) and the actual gross margin. It does not insure against death or other cause of production loss or damage to the producer’s dairy cattle. It does not insure expected price changes which are already reflected in BOT futures prices.
Enrollment Periods. Twelve monthly enrollment periods are available beginning the last business Friday of each month until 9pm next day. The last 10 months of each enrollment period is when insurance is available. Producer can elect to insure during selected or all 10 months in each period. Program is available in 48 contiguous states.
Premium is billed at the end of the enrollment (insurance) period in which producer enrolled. There federal premium subsidy if milk is enrolled in at least 2 of the months available for the monthly enrollment period: (deductible/subsidy rate):
$0/18%, $0.10/19%, $0.20/21%, $0.30/23%, $0.40/25%, $0.50/28%, $0.60/31%, $0.7/34%, $0.8/38%, $0.9/43%, $1.0/48%, $1.10 to $2.00/50%
August 2008 enrollment performance
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Estimates for educational purposes
For more information contact a crop insurance agent or http://www3.rma.usda.gov/apps/agents/ Page 2
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November 2012 Enrollment Illustration (zero deductible, default feed choice) based on
November 6 - 8, 2012 Futures Prices used to calculate estimated Expected Margins:
CoverageMonth / Production
(cwt) / Corn Equiv
(tons) / Soybean Meal Equiv
(tons) / % covered / Monthly Gross Margin
Month Year / Milk Qty. / Covered Milk
× Expected Price
= Milk Revenue / Corn Qty. / Covered Corn
× Expected Price
= Corn Cost / SBM Qty. / Covered SBM
× Expected Price
= SBM Cost / Milk Revenue
- Corn Cost
- SBM Cost
- (Deductible × Milk Qty.) / $/cwt of
Farm Milk / $/cwt of
Covered Milk
Jan 2013 / / 100 cwt
× $19.20/cwt
= $1,920 / / 1.4tons
× $7.43/bu
= $371 / / 0.2tons
× $463.83/ton
= $92 / / 1,455 / 14.56 / 14.56
Feb 2013 / / 100 cwt
× $18.93/cwt
= $1,893 / / 1.4tons
× $7.43/bu
= $371 / / 0.2tons
× $458.54/ton
= $91 / / 1,429 / 14.30 / 14.30
Mar 2013 / / 100 cwt
× $18.87/cwt
= $1,887 / / 1.4tons
× $7.44/bu
= $372 / / 0.2tons
× $453.26/ton
= $90 / / 1,424 / 14.24 / 14.24
Apr 2013 / / 100 cwt
× $18.88/cwt
= $1,887 / / 1.4tons
× $7.42/bu
= $371 / / 0.2tons
× $445.52/ton
= $89 / / 1,427 / 14.28 / 14.28
May 2013 / / 100 cwt
× $18.75/cwt
= $1,874 / / 1.4tons
× $7.41/bu
= $370 / / 0.2tons
× $437.78/ton
= $87 / / 1,416 / 14.17 / 14.17
Jun 2013 / / 100 cwt
× $18.61/cwt
= $1,860 / / 1.4tons
× $7.36/bu
= $368 / / 0.2tons
× $433.53/ton
= $86 / / 1,406 / 14.06 / 14.06
Jul 2013 / / 100 cwt
× $18.51/cwt
= $1,850 / / 1.4tons
× $7.32/bu
= $366 / / 0.2tons
× $429.28/ton
= $85 / / 1,399 / 13.99 / 13.99
Aug 2013 / / 100 cwt
× $18.44/cwt
= $1,843 / / 1.4tons
× $6.95/bu
= $347 / / 0.2tons
× $417.95/ton
= $83 / / 1,412 / 14.13 / 14.13
Sep 2013 / / 100 cwt
× $18.37/cwt
= $1,836 / / 1.4tons
× $6.58/bu
= $329 / / 0.2tons
× $403.25/ton
= $80 / / 1,427 / 14.27 / 14.27
Oct 2013 / / 100 cwt
× $18.22/cwt
= $1,821 / / 1.4tons
× $6.51/bu
= $325 / / 0.2tons
× $387.65/ton
= $77 / / 1,418 / 14.19 / 14.19
Total / Farm / 1,000cwt / 14tons / 2tons / 100.00% / GMG
14,218 / 14.22 / 14.22
The above and next pages estimated information is from the homepage of the University of Wisconsin Dairy Marketing and Risk Management Program and is maintained by Prof. Brian W. Gould of the Dept. of Agric. and Applied Economics. It is recommended that you use the browser: http://future.aae.wisc.edu/lgm_analyzer/
Estimated Summary of Protection and Estimated Cost
The data above was generated from the milk prices and feed ration information used on the previous page. It shows the effect of the various levels of the Federal subsidy on the cost of the insurance policy and other important information. More details can be found at the homepage of the University of Wisconsin Dairy Marketing and Risk Management Program and is maintained by Prof. Brian W. Gould of the Dept. of Agric. and Applied Economics. It is recommended that you use the browser: http://future.aae.wisc.edu/lgm_analyzer/
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