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USDA Improves Gross Margin Insurance Plan for Dairy Cattle

Oct 22, 2010

The U.S. Department of Agriculture's Risk Management Agency yesterday announced significant improvements to its Livestock Gross Margin for Dairy Cattle (LGM-Dairy). These changes, approved by the Federal Crop Insurance Corporation board of directors, will make the plan a more attractive option for managing financial risks associated with dairy farming. The revised plan for 2011 will be available for sale on December 17.

The improvements include delayed premium-payment dates, premium subsidies for policies that ensure multiple months during the insurance period and higher deductibles.

"The livestock gross margin for dairy insurance plan has been underutilized by dairy farmers, and we applaud Secretary of Agriculture Tom Vilsack for developing ways to encourage more participation," said Connie Tipton, IDFA president and CEO. "Increased use of risk management tools, like this program, would go a long way toward helping dairy farmers address the price volatility we have seen in recent years."

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.

Read the news release here.

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