Next LGM-Dairy policy sale is Jan. 25-26

The next sales period for fiscal year 2013 (FY ’13) Livestock Gross Margin-Dairy (LGM-Dairy) margin insurance policies begins Jan. 25, according to Alan Zepp, Risk Management Program coordinator with Pennsylvania’s Center for Dairy Excellence.

Hosting his monthly “Protecting Your Profits” conference call on Jan. 23, Zepp said current expected margins available under LGM-Dairy remain above historical averages. Expected insurable margins for the March-December 2013 period averaged $14.14/cwt. with a ”$0 deductible” policy ($13.14/cwt. for a “$1 deductible” policy). Highest expected insurable margins are from May-December 2013, averaging $13.48/cwt. ($1 deductible policy).

Comparatively, historical 5-year actual margins for the March-December period average $12.32/cwt., with the 10-year average for the period at $12.11/cwt.

Based on current conditions, Zepp estimated a ”$0 deductible” policy, using "default” feed prices, would cost dairy producers about 69¢/cwt.; a “$1 deductible” policy would cost 21¢/cwt. And, covering the period of highest expected margins (May-December 2013) with a $1 deductible policy would cost just 16¢/cwt.

Compared to other risk management tools, LGM-Dairy costs remain favorable, Zepp noted.

• As of Jan. 22, May corn futures closed at $7.23/bushel, with a May “call” settling at 32¢/bushel. December corn futures closed at $5.90/bushel, with a “call” at 53¢/bushel.

• March soybean meal futures were trading at $425/ton, with a $430/ton “call” costing $16.40/ton May soybean meal, at $415/ton, had a $420/ton “call” at $12.00/ton.

• $17.00/cwt. March Class III milk had a “put” cost of 45¢/cwt. May Class III milk was trading at $18.14/cwt., with a $18.25/cwt. “put” at 65¢/cwt.

 

Slow sales continue

LGM-Dairy policy sales during the past two months (November and December) have been slow, Zepp noted. Administered by USDA’s Risk Management Agency (RMA), about 40% of the original fFY ’13 allocation of $20 million remains, leaving about $6.0 million-$6.5 million available to subsidize premiums and administrative costs.

Due in large part to disappointment over last year’s results, LGM-Dairy participation has been especially weak in parts of the Northeast, with sharpest declines in Vermont and Pennsylvania. Weaker participation has been noted from New York to California, with the exception of some Midwest states. For example, Wisconsin participation is already up from 2012, with more than 8.2 million hundredweights of milk  covered in FY ’13.

Slower participation in LGM-Dairy may not be alone, Zepp said. There appears to be less hedging being done on all futures markets.

Jan. 25 sales will not begin prior to 4:30 p.m. (CST). Sales will begin on the half hour after the information to determine the expected gross margins becomes available. For example, if the expected gross margins have not been released by 4:30 p.m. (CST), sales will begin at 5 p.m. (CST), and so on.

For further information, producers can contact Zepp at azepp@centerfordairyexcellence.org.

Dairy producers can find an LGM-Dairy specific agent on the LGM-Dairy website maintained by Prof. Brian Gould (bwgould@wisc.edu) of the Department of Agricultural Economics at the University of Wisconsin-Madison (http://future.aae.wisc.edu/lgm_dairy.html). The LGM-Dairy Analyzer software system contained within the software section (http://future.aae.wisc.edu/lgm_analyzer/) is being used extensively across the U.S. by insurance providers and dairy farm operators to help plan for LGM-Dairy contract offering, and to examine the performance of previously purchased contracts.