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What’s Happening with LGM for Dairy?

Apr 25, 2011

Although the insurance program has ended for the 2011 crop year, continue to learn and develop strategies for your dairy to use when it becomes available again later this year.

Marv Portrait 4By Marv Carlson, Dairy Gross Margin, LLC
Just slightly more than two hours from the afternoon availability of Livestock Gross Margin (LGM) for Dairy Insurance on March 25, 2011, USDA’s Risk Management Agency ran out of the budgeted subsidy set at $15 million for the 2011 crop year. 
So, consequently, LGM for Dairy insurance sales have ended for the 2011 crop year. Word from reliable sources is that LGM-Dairy sales probably will not be available again until Oct. 28, 2011.
We will keep you informed throughout the year as to changes with LGM for Dairy. During this time, we will provide you with snippets on LGM for Dairy so you can continue to learn and develop strategies for your dairy operation for when it is again available.
You may be over-budget on your monthly dairy feed budget, too! Managing the risk of rising feed prices is a major component of Livestock Gross Margin insurance. 
Understanding feeding value equivalents still has merit in a margin management planning process. Most energy and protein feed sources’ pricing structures are compared to or based off the CBOT corn and soybean meal prices. When you have least-cost rations developed in the Midwest, I am confident there is a comparison to corn and soybean meal values somewhere in the software’s architectural framework.
The risk protection structure of LGM for Dairy is simply milk minus feed. Corn is used as the energy component, and soybean meal as the protein base for all feedstuffs in the ration. I said simply, right? Well, that part is actually simple. The harder part is collecting your feed data in tons to compare to your milk production. Each feedstuff is converted to its corn and soybean meal tonnage, and then divided down to feed per cwt. of milk.  
Since there is quite a large acceptable range for feed inclusion in each month’s target marketings, the hardest part is the determination process of how much feed to include.
Each farm operation feed-cost risk structure is different. They may value the feed produced on the farm at cost of production. They may have pre-priced a portion of their feed needs they must purchase, and additional feed risk protection with LGM for Dairy is not needed. Some farms have a larger land base and don’t need to purchase additional forages. 
When you look into the crystal ball, you may not see an immediate need for feed risk protection. As you can see, there are many different situations. With LGM insurance only sold on the last business Friday of each month, strategies for feed inclusion amounts may change from month to month, depending upon market conditions or risk protection tools put into place.
I will work you through using the LGM for Dairy feed calculator. The goal is to know your feed usage “Baseline or Benchmark” for total feed needs on your operation.
Obviously the feed for the lactating cows needs to be included. How about the dry cows? That feed cost is paid back from milk sales, so add it in, too. The next question is: “Do you buy replacement heifers or raise them on the farm?” Feed for this phase of production gets paid back from milk sales, too.
To get started, collect tonnage for feeds fed during the given period of time you want to match with milk production data. Then go to our web site http://www.dairygrossmargin.com and look under premium estimator. You have two options, the online web-based calculator and the downloadable spreadsheet.
Both of these options have been developed and are maintained by Professor Brian W. Gould of the Department of Agriculture and Applied Economics, University of Wisconsin-Madison, and his team.
I recommend using the Excel spreadsheet, since you can save your work and fix any data entry errors you may have made. As you review the spreadsheet, you will notice three worksheets. The first two are for feed data input, “Concentrates and Grains” and “Forages.” The third is “Total Feed Equivalents” for summary and comparison. Be sure to enter the milk production in cwt. on worksheet “Total Feed Equivalents.”
This is a list of how to proceed from this point:
  • Enter Feed in Tons for feeds listed on the Concentrates and Grains worksheet.
  • Enter Feed in Tons for feeds listed on the Forages worksheet.           
  • Look at “Total Feed Equivalents” worksheet.
  • Review “Is Feed within Allowable Limits?”
  • Check and review your feed inputs.
This spreadsheet is pretty slick to use and really a great place to start for using understanding your feed usage when considering LGM for Dairy or using corn and soybean meal contracts or options to offset risk for feedstuffs that are not exchange traded.
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.
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