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Is LGM Dairy Insurance the Right Tool for Your Business?

Josh Newton
Educational Opportunities: 
Home > Education & Events > October 2017 > Is LGM Dairy Insurance the Right Tool for Your Business?

If you are contemplating opting out of the MPP program and exploring other risk managementment options, we’ve put together a little refresher on the LGM Dairy Insurance program which may be a valuable addition to your operation’s risk management plan.

The LGM-Dairy program provides protection when milk prices fall or when feed prices rise.  The purpose of the program is to protect our Income Over Feed Cost (IOFC) margin, which is the difference between expected milk prices and expected feed costs, less any deductible, which can range from $0-$2.00/CWT.  Class III milk futures price, corn futures price and Soybean Meal futures price, traded on the Chicago Mercantile Exchange (CME) determine the margins.  Here are some of the features that may make this option a good fit for your operation:
  • Customizable to fit your operation
    • Percentage of milk covered can vary from month to month.
    • Feed ration quantities can be adjusted to match your operation. 
    • Available for operations of all sizes, allowing for coverage up to 24 million pounds per marketing year.
  • Convenient
    • You can add coverage up to 12 times per year, as long as the funding is available and the maximum number of pounds of milk has not been reached.
    • You pick which months to insure milk within the available ten-month policy period.
  • Responsive
    • Margins are based on current market prices allowing you to lock in higher margin levels when they are advantageous to your operation.
    • You can increase the amount of milk covered in future months to accommodate production growth or expansion of your herd.
  • Affordable
    • Contrary to the MPP program, coverage over four million pounds doesn’t result in a higher premium rate.
    • Federally subsidized at ranges from 18 to 50%, depending on the deductible level selected.
    • Premiums are due after the ten-month policy period has ended.
Prior to electing LGM-Dairy coverage, it’s important to take some time to evaluate and understand the key metrics of your own operation. For instance, knowing your IOFC and  your current balance sheet numbers can help you predict the impact declining margins could have on your business.  This will help you decide how much coverage, and what coverage level, is right for you.

If you need assistance gaining a handle on these numbers work with your Financial Officer, Insurance Officer or another trusted advisor. Knowing your business’s financial strength and determining the amount of risk your business can tolerate is the first step in exploring how the LGM-Dairy product might fit into your risk management plan.
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