FIRST: LOOKING AT 2016
Marketing decisions for 2016 will need to be made soon. LGM-Dairy now has additional funding and more coming later in the year. If you have not signed up for MPP, LGM is a viable choice. Additional funding became available for the July 31 sales period. Additional funds should become available for August and September, with full annual funding coming in October.
The MPP decision to sign up or change your coverage level is September 30, 2015. If you look at the projected values for MPP into 2016, you will see an upward slope. The first six months average value is $8.05 which is $.05 above the $8.00 coverage level. Premiums will run from $.48 to $1.20 depending upon the size of your dairy operation. The MPP values for July to December of 2016 are $9.36/cwt.
January to June, 2016 (as of August 3, 2015)
$8.00 coverage: market needs to fall $.05/cwt to get an MPP payment
$6.50 coverage: market needs to fall $1.55 to get an MPP payment
$4.00 coverage: market needs to fall $4.05 to get an MPP payment
July to December, 2016 (as of August 3, 2015)
$8.00 coverage: market needs to fall $1.36 to get an MPP payment
$6.50 coverage: market needs to fall $2.86 to get an MPP payment
$4.00 coverage: market needs to fall $5.36 to get an MPP payment
(Click on charts below to view larger version)
MPP AND LGM-DAIRY RESULTS FOR JANUARY TO JUNE, 2015
MPP has generated no indemnity in excess of premium for the first six months of 2015. Premiums for the six month period for the $8.00 coverage would have been $.48 to $1.20, depending upon the size of operation. Premiums for $6.50 coverage were $.07 to $.25, depending on size. MPP did not generate net indemnities for the $6.50 coverage. See chart below.
If you would have purchased an LGM-Dairy policy during June, July and August, 2014, the net after premium would have been $.94/cwt for all six months. If you would have purchased a policy in August, September and October, 2014, the results would have been $.76/cwt net after premium. The LGM policies in these examples were two month policies (January/February, March/April, May/June) to mimic the MPP payment periods.
While LGM final results and indemnity payments were substantial for the first four months of 2015, the final results for May and June were relatively small. Once again, it did depend upon when the coverage was purchased. See chart below.
Dr. Gould’s website shows the estimated MPP values:
USDA estimated values for 2015 and 2016 are reported on this website:
The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.
Ron Mortensen is principal of Dairy Gross Margin, LLC, an agency that specializes in LGM-Dairy products, and owner of Advantage Agricultural Strategies, Ltd., a commodity trading advisor.