LGM-Dairy Calculations

We recently started following the experience of a dairy farmer using Livestock Gross Margin (LGM-Dairy) contracts. Click here for the first post in this series.

Let's see if we can duplicate these numbers from that post: "Our premium is $40 for the month and we are insuring $1,468 gross margin." Recall that the example in that post was to insure 100 cwt with no deductible. The contract was entered into in October 2010, and one month was insured - December 2010.

Prof. Brian W. Gould of the Department of Agricultural and Applied Economics at the University of Wisconsin-Madison has helpfully created an online LGM Analyzer:

http://future.aae.wisc.edu/lgm_analyzer_new/

Open the LGM Analyzer at the link above in a new window and follow these steps:

• Select "Premium Estimator" tab
• Change the insurance contract month to 2010 October
• Change the deductible to $0.0
• Select "Default" for feed values

In the table:

• Uncheck the box in the header that says "Coverage Month"
• Check the box in that column for "Dec 2010"
• On the row for "Dec 2010" enter 100 for Milk Qty.
• On the same row, the column for "% covered" should autofill to 100

The three columns to the right should now show the insured gross margin: $11.06/cwt or $1,106 total. So why does the post say $1,468? That is (approximately) the "Milk Revenue" in the third column. I get $1,463.

Now scroll down and click the "Calculate LGM Premium" button. You will see that the premium is $0.40/cwt or $40 total. Voila!