Livestock Gross Margin (LGM) provides protection for swine, cattle and dairy against the loss of gross margin, which is based on the difference between the market value of the livestock or milk minus the feed costs.

Swine

About LGM for Swine
LGM provides protection of the gross margin between the value of insured hogs and the cost of corn and soybean meal. LGM covers a decline in hog prices and/or an increase in feed costs.

LGM Eligibility
Swine producers in all 48 contiguous states feeding hogs are eligible for LGM. Producers must have an ownership share in the hogs being produced.

LGM Coverage Levels
Producers can choose deductible amounts from $0 to $20 per head, in $2 increments.

Determining Coverage
First, determine whether the operation is a farrow to finish, a segregated early weaned (SEW) or a finishing operation. Next, determine the number of hogs to be marketed each month of the insurance period, then sum the five monthly gross margin amounts and multiply by the coverage level to obtain the insurance period gross margin guarantee:

  • Farrow to Finish
  • Gross Margin per Month = 2.6 × 0.74 × Lean Hog Pricet – 12.0 bu. × Corn Pricet-3 – (138.55 lb./2000 lb.) × Soybean Meal Pricet-3 × Number of Hogs
  • SEW
  • Gross Margin per Month = 2.6 × 0.74 × Lean Hog Pricet – 9.05 bu. × Corn Pricet-2 – (91.0 lb./2000 lb.) × Soybean Meal Pricet-2 × Number of Hogs
  • Finish
  • Gross Margin per Month = 2.6 × 0.74 × Lean Hog Pricet – 9.0 bu. × Corn Pricet-2 – (82.00 lb./2000 lb.) × Soybean Meal Pricet-2 × Number of Hogs

 

LGM Coverage Period and Restrictions

  • 12 insurance periods per calendar year.
  • Price risk protection lasts for six months (e.g., Jan. 31 sales closing date covers Feb. [no cov. in Feb.] – July).
  • Target marketings cannot be insured in the first month of the period.
  • Price guarantees are based on futures prices and are set on the last business Friday of each month.
  • Sales period begins the last business Friday of each month until 8:00 p.m. CST the following evening.
  • Covers up to 15,000 hogs during any six-month insurance period and up to 30,000 hogs per crop year.

 

Loss Payments

  • Calculate the actual gross margin using the last three trading days prior to each contract’s expiration date.
  • Subtract the total actual gross margin from the gross margin guarantee to obtain the loss payment.
  • The price at which hogs are sold does not affect the loss payment.
  • Loss payments will be prorated if actual marketings fall below 75% of target marketings.

Cattle

About LGM for Cattle
LGM provides protection against loss of gross margin (market value of cattle minus feeder cattle and feed costs) on cattle. LGM covers a decline in cattle prices and/or an increase in feed costs and/or an increase in feeder cattle prices.

LGM Eligibility
Cattle producers in CO, IL, IN, IA, KS, MI, MN, MO, MT, NE, NV, ND, OH, OK, SD, TX, UT, WI, WV and WY feeding cattle in these states are eligible for LGM. Producers must have an ownership share in the cattle being produced.

LGM Coverage Levels
Producers can choose deductible amounts from $0 to $150 per head, in $10 increments.

Determining Coverage
First, determine whether the operation is a yearling to finish or a calf to finish. Next, determine the number of cattle to be marketed each month of the insurance period, then sum the ten monthly expected gross margin amounts and subtract the applicable deductible (deductible per head x sum of target marketings) to obtain the insurance period gross margin guarantee:

  • Yearling to Finish
  • Expected Gross Margin per Head = (12.50 x Live Cattlet) – (7.50 x Feeder Cattlet-5) – (50.0 x Cornt-2)
  • Calf to Finish
  • Expected Gross Margin per Head = (11.50 x Live Cattlet) – (5.50 x Feeder Cattlet-8) – (52.0 x Cornt-4)

 

LGM Coverage Period and Restrictions

  • LGM has 12 insurance periods per calendar year.
  • Target marketings cannot be insured in the first month of the period.
  • Price risk protection lasts for eleven months (e.g., Jan. 31 sales closing date covers Feb. [no coverage in Feb.] – Dec.).
  • Price guarantees are based on futures prices and are set the last business Friday of each month.
  • Sales period begins the last business Friday of each month until 8:00 p.m. CST the following evening.
  • Covers up to 5,000 head during any 11-month insurance period and up to 10,000 head per crop year.

 

Loss Payments

  • Calculate the actual gross margin using the last three trading days prior to each contract’s expiration date.
  • Subtract the total actual gross margin from the gross margin guarantee to obtain the loss payment.
  • The price at which cattle are sold does not affect the loss payment.
  • Loss payments will be prorated if actual marketings fall below 75% of target marketings.

Dairy

About LGM-Dairy
Livestock Gross Margin for Dairy Cattle provides protection against the loss of gross margin (market value of milk minus feed costs) on the milk produced from dairy cows.

LGM-Dairy Eligibility
Any producer who owns dairy cattle in AL, AR, AZ, CA, CO, CT, DE, FL, GA, ID, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MO, MS, MT, NC, NE, NV, NH, NJ, NM, NY, ND, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WV, WI or WY is eligible for LGM.

LGM-Dairy Deductibles
Producers can select deductible amounts from $0 to $2 per hundredweight of milk, in $0.10 increments.

Determining Coverage for LGM-Dairy
Producers will need to determine the number of hundredweight of milk to be marketed and insured in each month of the insurance period. They will also need to determine the number of tons of corn or corn equivalent and the tons of soybean meal or soybean meal equivalent that they expect to feed for each month in which they insure milk. The number of tons of corn or corn equivalent must be between 0.00364 tons (7.28 lbs) and 0.0381 tons (76.2 lbs) per hundredweight of milk. The number of tons of soybean meal or soybean meal equivalent must be between 0.000805 tons (1.61 lbs) and 0.013 tons (26 lbs) per hundredweight of milk. Producers may also choose to use default values of 0.014 tons of corn (0.5 bushels) and 0.002 tons of soybean meal (4.0 lbs) per hundredweight of milk.

  • Expected Gross Margin Per Month = Expected Revenue – Expected Cost of Feed for Month
  • Expected Revenue = Expected Milk Price x Target Marketings
  • Expected Cost of Feed = (Corn Tons x 2000/56 x Expected Corn Price) + (Soybean Meal x Expected Soybean Meal Price)

 

LGM-Dairy Coverage Period and Restrictions

  • 12 insurance periods per year.
  • 11months each.
  • No milk can be insured in the first month of the insurance period.
  • Coverage begins one full calendar month following the sales closing date.
  • Sales period begins the last business Friday of each month until 8:00p.m. CST the following evening.
  • Covers up to 240,000 hundred weight of milk in any insurance period or crop year.
  • Premium for LGM-Dairy is due at the end of the insurance period.
  • A premium subsidy will be available for those policies that insure multiple months during the insurance period. The subsidy amount will be determined by a dollar deductible selected by the insured (ranging from $0 to $2, in $0.10 increments). Insureds choosing a $0 deductible will receive a lower premium subsidy (18%) and those choosing higher deductibles of $1.10 to $2 will receive a higher premium subsidy (50%).

 

LGM Loss Payments

  • Calculate the actual gross margin using the last three trading days prior to each contract’s expiration date.
  • Subtract the actual total gross margin from the gross margin guarantee to obtain the loss payment.
  • The price at which milk is sold does not affect the loss payment.
  • Loss payments will be pro-rated if actual marketings fall below 75% of target marketings.

Contact Us today at (970) 834-1160 or visit the location nearest you for your free quote. Let us find the right coverage for your farm and ranch needs.