Next LGM-Dairy sales period is Dec. 28

Current dairy economic and policy conditions continue to provide dairy producers with incentives to participate in this month’s Livestock Gross Margin-Dairy (LGM-Dairy) margin insurance sales period, set for Dec. 28-29, according to Alan Zepp, Risk Management Program coordinator with Pennsylvania’s Center for Dairy Excellence. Hosting his monthly “Protecting Your Profits” conference call on Dec. 19, Zepp said current insurable margins remain well above historical averages.

As of Dec. 18, the expected insurable margin for the 10-month coverage period (February-November 2013) was about $14.15/cwt. The actual five-year average margin for the period is $12.32/cwt.; the 10-year average is $12.11/cwt.

Zepp estimated a $0 deductible LGM-Dairy policy covering the 10 months, using default feed values, would cost 70¢/cwt. For a $1 deductible policy (guaranteeing a margin of $13.15/cwt.) for the February-November 2013 period, the cost of coverage would be about 22¢/cwt.

With passage of a 2012 Farm Bill anything but certain, and the expiration of the Milk Income Loss Contract (MILC) program, LGM-Dairy remains one of the few options left for producers to protect income margins, Zepp said. And, compared to other risk management tools, LGM-Dairy costs continue to be favorable. 

On Dec. 18, CME May corn was at $7.24/bushel, with a call costing about 45¢/bushel on a 5,000-bushel contract. May soybean meal contracts were at about $432/ton, with a $430 call costing $22.00/ton. May Class III milk, at $18.79/cwt., had a put cost of about 96¢/cwt.

Through three LGM-Dairy sales periods held this fall (August, October and November), Wisconsin dairy producers continue to be the most active in the LGM-dairy program, with more than 700 policies covering about 7.7 million cwt. of milk. Minnesota is second in policies sold, at more than 300, with California and Minnesota covering slightly more than 3 million cwt. of milk in each state through the three sales periods. Michigan producers have purchased about 150 policies, covering about 1.5 million cwt.

Approximately $4 million in underwriting capacity remains to cover LGM-Dairy premium subsidies and administrative costs for fiscal year 2013, according to Zepp. With the holidays disrupting normal business operations, he urged producers to contact their insurance agents handling LGM-dairy policies well before the Dec. 28-29 sales period. For more information, contact Zepp at azepp@centerfordairyexcellence.org or phone 717-346-0849.

Dr. Brian Gould, professor in the University of Wisconsin-Madison’s Department of Agricultural and Applied Economics, also has a LGM-Dairy Analyzer software system for planning purposes (http://future.aae.wisc.edu/lgm_analyzer/), or contact him at bwgould@wisc.edu or phone 608-263-3212. For additional information, visit http://future.aae.wisc.edu/lgm_dairy.html.