USDA announces improvements to the LGM-Dairy insurance plan

USDA’s Risk Management Agency (RMA) announced changes to the Livestock Gross Margin for Dairy Cattle (LGM-Dairy). The Federal Crop Insurance Corporation Board of Directors (Board) approved changes to LGM-Dairy, making it a more attractive option for the management of financial risks associated with dairy farming. The revised 2011 LGM-Dairy insurance plan will be available for sale on Dec. 17, 2010.

“In recent years, dairy farmers across the nation faced a crisis and thousands considered bankruptcy,” said William J. Murphy, RMA Administrator. “These improvements, including a premium subsidy, are substantial and will be of great benefit to American dairy farmers. I applaud the Board’s decision to approve these changes, which will make LGM-Dairy even more helpful in managing dairy risk,” said Murphy.

Improvements announced include the following:

• Revised timing of premium payments – Premiums for LGM-Dairy will now be due at the end of the coverage period rather than at the time of purchase.

• Subsidy – A premium subsidy will now be available for those policies that ensure multiple months during the insurance period. The subsidy amount will be determined by a deductible selected by the policyholder. This deductible will range from zero to $2.00 per hundredweight of milk in $.10 increments. Policyholders choosing a zero dollar deductible receive a lower premium subsidy of 18 percent. Those choosing the highest deductible of $2.00 per hundredweight of milk will receive a higher premium subsidy of 50 percent.

• Higher deductibles offered – The maximum dollar deductible has been increased from $1.50 to $2.00. Higher deductibles allow producers flexibility to cover a minimum gross margin, providing protection similar to catastrophic coverage.

• Adjustment of feed loads – Feed values have been updated based on information provided by the National Milk Producers Federation.

LGM Dairy provides protection to dairy producers when feed costs rise or milk prices drop. “Gross margin” is the market value of milk minus feed costs. LGM-Dairy uses futures prices for corn, soybean meal, and milk to determine the expected gross margin, and then, the actual gross margin. At the end of the 11-month insurance period, a dairy farmer is paid an insurance indemnity if the gross margin guarantee is larger than the actual gross margin. The price the farmer receives for milk and the local market is not used in these calculations.

LGM-Dairy is sold on the last business Friday of each month. The sales period ends at 8:00 p.m. the following day. If expected milk and feed prices are not available in a particular insurance period, LGM-Dairy will not be offered for sale for that insurance period. These changes do not apply to LGM-Dairy policies sold before December 17, 2010.

For more detailed information about LGM-Dairy, please visit the RMA Web site at http://www.rma.usda.gov/livestock/.

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