LGM-Dairy gets funding boost

USDA’s Risk Management Agency (RMA) has taken measures to manage available funds for the Livestock Gross Margin for Dairy (LGM-Dairy) insurance pilot program.

LGM-Dairy became more popular when it was improved last December, by moving the premium due date until after the coverage period ends, and by putting in place graduated producer premium subsidies. These changes, plus a concerted effort among industry groups to promote the LGM-Dairy policy, resulted in recent significant increases in LGM-Dairy sales.

The Federal Crop Insurance Act authorizes expenditures for associated costs for all livestock pilot programs to a maximum of $20 million per fiscal year. RMA currently reinsures eight livestock pilot programs, including LGM-Dairy.

In a monthly “Markets & Management Update” conference call on Feb. 23, Alan Zepp, risk management program coordinator at Pennsylvania’s Center for Dairy Excellence, said high producer interest in LGM-Dairy has stretched the underwriting capacity of some insurance providers, forcing them to limit policy sales.

It has also stretched available funds for USDA premium subsidies under the program, paid on those policies that insure multiple months during the insurance period. Zepp had warned LGM-Dairy may have run out of funds by June if RMA had not taken action.

To date, approximately $5.4 million in underwriting expenditures have been used for LGM-Dairy. In light of the large increases in sales for LGM-Dairy, for fiscal year 2011, RMA has made available $15 million for authorized expenditures to support the sales.

Sales of LGM-Dairy occur the last Friday (business day) of each month, starting at 5 p.m. and closing at 8 p.m. the next day. The next sales period for LGM-Dairy will be Feb 25-26.

For further information on LGM-Dairy policies, visit www.rma.usda.gov/livestock.

Zepp uses the monthly calls to update producers on current conditions related to dairy markets and margins, the Wednesday before monthly LGM-Dairy sales commence. For more information, call the Center for Dairy Excellence at 717-346-0849 or e-mail info@centerfordairyexcellence.org.

In addition, Dr. Brian Gould, University of Wisconsin-Madison dairy economist, offers an online LGM Analyzer, allowing producers to estimate the premium and run a Least Cost Optimizer to pick the right coverages to minimize  premiums, while ensuring that income over feed cost exceeds the desired target. Visit http://future.aae.wisc.edu/lgm_analyzer/.

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