Number of Dairy Producers Using LGM for Dairy Advances at a Rapid Pace

Livestock Gross Margin for Dairy has made a big surge forward in the last three months, with about 1.8% of the milk in the country covered under the risk management program.

By Marv Carlson, Dairy Gross Margin, LLC

Livestock Gross Margin for Dairy (LGM-Dairy) has made a big surge forward in the last three months. As of Feb. 25, about 1.8% of the milk in the country is covered. This compares to coverage by futures and options of 3% to 5%.

There are two reasons for the increased use of the LGM-Dairy product. First, the industry is in need of having a way to manage risk. LGM-Dairy fits that bill with an option-like floor price for gross margin. If prices of milk move lower and prices of feed move higher, the dairyman has a floor price. If the prices of milk move higher and the feed moves lower, he sells his milk in the marketplace at the higher prices. He has achieved the goal of supporting cash flow without putting a top on his income.

The second reason for the increases is the change in the LGM-Dairy product. First, the producer pays the premium at the end of the insurance period. Second, the RMA/USDA is now subsidizing the premium by 18% to 50%, depending upon the deductible selected.

Dr. Brian Gould from the University of Wisconsin has a premium estimator that he created and supports. This calculator allows the dairyman to look at the prices of milk, corn and soybean meal and get an estimated premium. Then, the last Friday of the month, the policy can be purchased through a crop insurance agent licensed to sell LGM for Dairy.

Historical data and other information can be found on our website at www.dairygrossmargin.com. Go to Premium Estimator to access Dr. Gould’s premium estimator. Go to History to review historical data regarding LGM-Dairy.

Summary of the LGM for Dairy policies for this 2011 crop year follows:
To give you an idea of the averages, first a look at some states individually. Then look at RMA’s data in the big chart at the end. · California
35 policies
2.8 million cwts. covered
$650,000 in RMA/USDA subsidy paid
$41,257 -- average premium paid by producer
80,085 cwt. -- average cwt. covered in each policy
$.52/cwt. -- average premium paid per cwt.
$.23/cwt. -- average amount of premium paid by government

· Washington
55 policies
2.424 million cwts. covered
$558,800 in RMA/USDA subsidy paid
$22,050 -- average premium paid by producer
44,000 cwt. -- average cwt. covered in each policy
$.50/cwt. -- average amount of premium paid by government
$.23/cwt. -- average amount of premium paid by government

· Idaho
37 policies
1.29 million cwts. covered
$186,400 in RMA/USDA subsidy paid
$14,959 -- average premium paid by producer
34,900 cwt. -- average cwt. covered in each policy
$.42/cwt. -- average amount of premium paid per cwt.
$.14/cwt. --average amount of premium paid by government

· Wisconsin
367 policies
6.831 million cwts. covered
$1,467,000 in RMA/USDA subsidy paid
$9,932 --average premium paid by producer
18,600 cwt. -- average cwt. covered in each policy
$.53/cwt. -- average premium paid per cwt.
$.21/cwt. -- average amount of premium paid by government

· New York
79 policies
2.188 million cwts. covered
$500,948 in RMA/USDA subsidy paid
$17,354 -- average premium paid by producer
27,700 cwt . -- average cwt. covered in each policy
$.62/cwt. -- average premium paid per cwt.
$.22/cwt. -- average amount of premium paid by government

· Pennsylvania
181 policies
1.625 million cwts. covered
$368,647 in RMA/USDA subsidy paid
$5,431 -- average premium paid by producer
8,978 cwt. -- average cwt. covered in each policy
$.60/cwt. -- average premium paid per cwt.
$.23/cwt. -- average amount of premium paid by government

· Vermont
100 policies
4.416 million cwts. covered
$968,900 in RMA/USDA subsidy paid
$19,740 -- average premium paid by producer
44,160 cwt. -- average cwt. covered in each policy
$.45/cwt. -- average premium paid per cwt.
$.22/cwt. -- average amount of premium paid by government

· Nationally
1,090 policies
$13,908 -- average premium paid by producer
26,000 cwt. -- average cwt. covered in each policy
$.53/cwt. -- average premium paid per cwt.
$.22/cwt. -- average amount of premium paid by government
This data implies a $.30 deductible has been used on average
Total subsidy paid by government to date is $7.55 million

RMA’s Data: a producer’s policy may have multiple units (monthly target marketings)

Marv Carlson is with Dairy Gross Margin, LLC, in Sioux Rapids, Iowa. Contact him at marv@dairygrossmargin.com or (712) 240-8395. Visit the firm’s website for more information: www.dairygrossmargin.com.