Dairy farmers, have you decided whether to apply for Dairy Livestock Gross Margin insurance yet? Sign-up for the federally subsidized Dairy LGM is set for Oct. 28 and 29.
But you need to investigate it and make a decision beforehand. The program, which proved to be extremely popular in early 2011, quickly ran out of limited federal funding.
That's likely to be the case this month – assuming the new funding will be available, says Bob Parsons, University of Vermont ag economist. Sign-up options will likely be on a first come, first served basis.
Dairy LGM insurance may be purchased only after 5 p.m. on Oct. 28 and until 9 p.m. on Oct. 29 from an authorized crop insurance sales agent. But as Parsons points out, "A real possibility exists that available funding will run out in the early signup months due to high farmer participation."
Much like auto or fire insurance, it's designed to help protect the farm from a milk and/or feed price disaster such as what occurred in 2009. Ask yourself is "Can we afford not to spend 20 or 30 cents per hundredweight to protect our farm from disaster?"
Dairy LGM is flexible to meet farmers' needs through a combination of varying deductibles and contract lengths and subsidies up to 50% of the premium cost. It helps to manage the risk of falling milk prices and/or rising grain prices through a guaranteed pre-determined dollar amount of income over feed cost for up to a year in the future.
How Dairy LGM works
In essence, it allows you to minimize the effect of volatile milk and feed prices by insuring your margin of income over feed costs. You select how much milk you want to insure, then choose a deductible that you can live with.
Here's a simple version: The program uses Chicago Mercantile Exchange Futures prices to establish a margin over feed costs. For example, say that the March 2012 Futures market has milk at $16 per cwt. And the corn and soybeans needed to produce 100 pounds of milk cost $5.\
So, your margin over feed costs is $11. Now, you contacts crop insurance sales agent and choose how much milk to insure.
Fast forward to March 2012. Milk price have dropped to $14 while your feed costs are up to $6. Your actual margin is $8 per hundredweight of milk instead of the insured $11. You're now eligible for an indemnity payment of up to $3 per cwt., depending on the coverage you chose.
Coverage costs may range from 80 cents per cwt. without any deductible to 20 cents per cwt. with up to a $1.50 deductible. The deductible works the same as in car insurance. You self-insure the first $1.50 in loss if that was your decision. The premiums are due at the end of the coverage period, not up front.
Early bird gets the coverage
Available funding for the subsidized premium ran out in March 2011 due to higher than expected participation. That's why Parsons highly recommends meeting with an agent well in advance of this signup period to discuss what options best fit your needs – and to set up an early appointment during the enrollment period.
Making your enrollment decision before Oct. 28 makes the signup procedure much easier. If capacity gets tight, the first to apply have the best opportunity to get protection, he adds.
University of Wisconsin provides a Dairy LGM analyzer at LGM-Dairy Analyzer. Click on the Premium Estimator tab, then click on Upload a File, and follow the prompts.
New York State's data file for the LGM-Dairy Analyzer can be found at CSV .
New York Department of Ag and Markets has done a series of webinars on Dairy LGM. Listen in to the recorded sessions or see the PDFs at www.agmkt.state.ny.us/AP/CropInsuranceEvents.html.
On Oct. 26, Alan Zepp, risk management coordinator for Pennsylvania's Center for Dairy Excellence will host a "Protecting Your Profits" conference call with a quick review of market conditions and an estimate of expected gross margins program. The conference call runs from Noon to 12:30 p.m. To register, call 717-346-0849 or email firstname.lastname@example.org