Funding Drops to $7 Million for USDA’s Livestock Gross Margin for Dairy Program

October 10, 2011 10:04 AM

The LGM-Dairy insurance program is likely to sell out by next month.

Only $7 million has been allocated to the federal Livestock Gross Margin for Dairy insurance program this year, sources tell Dairy Today.
That’s a sharp drop from last year’s $16 million allocation for dairy.
The first sales date for the 2012 crop year will be Friday, Oct. 28, 2011, according to a news release from USDA’s Risk Management Agency (RMA) office in Spokane, Wash.
Sales will continue on the last Friday of each month until June 30, 2012, or until the maximum underwriting capacity is reached.
The LGM-Dairy insurance program is likely to sell out by next month, says Marv Carlson of Dairy Gross Margin, LLC, an LGM-for-Dairy provider.
“Discussion by [Iowa State University’s] Dr. Chad Hart, during his World Dairy Expo seminar session [scroll down to “LGM for Dairy"] last week in Madison, Wis., was that with a $16-million-dollar allocation, RMA and others attuned to LGM for Dairy felt that this level of funding would only last for two months of sale,” says Carlson. “So, when doing the math, it leaves the impression that with less than half the last year’s subsidy funding, we may not even have subsidy funding to last throughout the October sales period.”

In all, RMA has allocated $14.3 million for all funds in its livestock risk and insurance program. A summary of the funds for RMA’s livestock insurance products shows:

·         Adjusted Gross Revenue - Lite (0061)                               $100,000
·         Livestock Risk Protection (81) Feeder Cattle (0801)         $1,986,574
·         Livestock Risk Protection (81) Fed Cattle (0802)              $490,489
·         Livestock Risk Protection (81) Lamb (0804)                     $711,787
·         Livestock Risk Protection (81) Swine (0815)                    $500,000
·         Livestock Gross Margin (82) Cattle (0803)                        $500,000
·         Livestock Gross Margin (82) Swine (0815)                       $3,000,000
·         Livestock Gross Margin (82) Dairy Cattle (0847)              $7,000,000
“Last year, when RMA allowed the premium payment to be made at the end of the policy and started subsidizing this risk management insurance premium, the $16 million subsidy funding for LGM-for-Dairy sold for about three and a half months,” says Carlson.
Margin protection is crucial during volatile market times, and the principles upon which LGM-for-Dairy are based can help producers minimize the effects of rapid changes in the marketplace, Carlson adds. LGM-for-Dairy filled a gap for smaller producers and producers whose production did not match CME futures contract specs.
LGM-Dairy provides protection against loss of gross margin (market value of milk minus feed costs) on milk produced from dairy cows. LGM-Swine provides protection against the loss of gross margin (market value of livestock minus feed costs) on swine. Both policies use futures prices to determine the expected gross margin and the actual gross margin.
Dairy and pork producers are encouraged to contact a livestock agent for further details.
Federal crop and livestock insurance policies are sold and delivered solely through private crop and livestock insurance companies. A list of livestock insurance agents is available at all USDA Service Centers throughout the U.S. or at the RMA Web site.

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