Coverages | LGM for Hogs | Livestock Gross Margin for Cattle

Livestock Gross Margin (LGM)

Hogs | Cattle

LGM for Cattle

LGM provides protection against loss of gross margin (market value of cattle minus feeder cattle and feed costs) on cattle. LGM covers a decline in cattle prices and/or an increase in feed costs and/or an increase in feeder cattle prices. Cattle producers in CO, IL, IN, IA, KS, MI, MN, MO, MT, NE, NV, ND, OH, OK, SD, TX, UT, WI, WV, and WY feeding cattle in these states are eligible for LGM (producers must have an ownership share in cattle being produced). Producers can choose deductible amounts from $0 to $150 per head in increments of $10.

Determining Coverage

First, determine whether the operation is a Yearling to Finish, or a Calf to Finish. Next, determine the number of cattle to be marketed each month of the insurance period, then sum the ten monthly Gross Margin amounts and multiply by the coverage level to obtain the insurance period Gross Margin Guarantee:

Yearling to Finish
Expected Gross Margin per Head = (12.50 x Live Cattlet)- (7.50 x Feeder Cattlet-5) - (57.5 x Cornt-2)

Calf to Finish
Expected Gross Margin per Head = (11.50 x Live Cattlet)- (5.50 x Feeder Cattlet-8) - (54.5 x Cornt-4)

Loss Payments

• Calculate the Actual Gross Margin using the last three trading days prior to each contract’s expiration date.
• Subtract the Total Actual Gross Margin from the Gross Margin Guarantee to obtain the loss payment.
• The price at which cattle are sold does not affect the loss payment.
• Loss payments will be prorated if actual marketings fall below 75% of target marketings.

LGM Coverage Period and Restrictions

• LGM has 12 insurance periods per calendar year.
• Target marketings can’t be insured in the first month of the period.
• Price risk protection lasts for eleven months (ex: Jan. 31 sales closing date covers Feb. [no cov. in Feb.] - Dec.).
• Price guarantees are based on futures prices and are set the last business day of each month.
• Sales period begins after prices/rates are set by RMA until 9:00 a.m. (Central Standard Time) the next day.
• Covers up to 5,000 head during any eleven month insurance period and up to 10,000 head per crop year.

NOTE: The Livestock Price Reinsurance Agreement allows for Private Reinsured Companies to have limited yearly capacity available on a first come, first served basis.

t = base time, t-2 = base - 2 months, t-4 = base - 4 months, t-5 = base - 5 months, t-8 = base - 8 months