Livestock Gross Margin for Dairy (LGM-Dairy) is a new risk management tool available for dairy producers. The LGM-Dairy protects a farmer's defined income over feed cost. This insurance program may become an important tool to control increased volatility of milk and feed prices. With uncertain and volatile milk prices and feed costs, there is a greater need for effective risk management strategies that can prevent producer's potential losses due to prices and cost risks. Some risk management tools like futures and option trading can protect producers against low milk prices. However, they do not protect them against high production costs. Furthermore, a better option is a coverage based on the gross margins or protection of the milk income over feed costs rather than milk prices or the feed costs alone. The LGM-Dairy offers a better alternative as a risk management strategy.
In collaboration with Professor Brain W. Gould of the Department of Agricultural and Applied Economics we have developed a series of resources to decide in the use of LGM-Dairy from a farm practical point of view:
LGM-Dairy email list : This section sends notifications of new LGM-Dairy materials, software upgrades, new data, etc.
Materials Explaining the LGM-Dairy: This section has white papers, extension reports, brochures, and power point presentations to better understand the LGM-Dairy insurance program.
Underlying Data: This section provides a wide collection of historical and future data on commodity prices used for implementing LGM-Dairy.
Supporting Software: This section provides a comprehensive set of unique decision support tools to help in the decision of engaging in LGM-Dairy.
We have a Premium Calculator that allows users to assess the coverage level and premium price of alternative LGM-Dairy contracts. One of these calculators is capable to perform web-based simulation using daily future prices, the other calculator that uses historical contracts is capable to compare the performance of the LGM-Dairy with actual price data.
We feature our Optimizer or LGM-Dairy-Least-Cost tool capable to minimize the LGM-Dairy premium cost to a defined level of income over feed cost protection. This web-based optimization model used to identify the insurance contract design that minimizes the premium cost per cwt of total farm milk of generating a predefined guaranteed income over feed cost. The decision variables are the percentage of farm milk to insure for each month of the insurance contract. This program uses the latest 3 days of trading data to provide an estimate of the costs of next
month's LGM-Dairy insurance contract. An User's Manual is
available for download.
Please visit the Understanding Dairy Markets LGM-Dairy for more information related to LGM-Dairy.