How to Get Started with Livestock Gross Margin
Managing risk can be confusing, complicated, and unpredictable. Where do you start? What are your options?
What is LGM?
Livestock Gross Margin (LGM) is a Federal Crop Insurance Corporation-based insurance program which guarantees that you’ll receive a certain gross margin for your herd at the end of an 11-month insurance period. It factors the market value of your herd minus the costs of feeder cattle and feed.
How to Get Started
When you choose to purchase LGM through Stockguard, you’re choosing to make risk management simple, affordable, and transparent.
- Submit an application
- Select commodity type
- Select coverage period
- Select a coverage price
- Place an order
You can also visit our easy-to-use portal and get a quote today. Our agents will be in touch to help you tailor an LGM coverage plan that aligns with your specific needs.
How do I know if LGM is right for me?
What is the difference between LGM and LRP?
Whereas LGM covers the price of the gross margin per head, LRP uses the Chicago Mercantile Exchange’s contract prices to insure the price of sold livestock. While LRP is typically a better fit for cow-calf operations, LGM is the preferred option for most feedlot operations.
LGM VS CME Contracts
Livestock Gross Margin (LGM) insurance and CME contracts are two different tools that are used by cattle producers to manage risk in the cattle market. Here are some differences between the two:
LGM:
- Covers the expected profit margin
- Insures against the risk of declining cattle prices or increased feed costs
- Requires a premium payment
- Premiums are subsidized by the government
- Flexible coverage periods
- Customizable coverage plans based on your needs
- Pays out based on the difference between the expected profit margin and the actual profit margin
CME:
- Covers the actual price
- Only covers the risk of declining cattle prices
- Requires upfront payment of the full contract value
- No subsidies
- Fixed expiration dates
- Standardized contracts with limited options
- Pays out based on the difference between the contract price and the current market price
Overall, LGM insurance and CME contracts are two different tools that cattle producers can use to manage risk in the cattle market. LGM insurance provides protection against declines in cattle prices and increases in feed costs, while CME contracts provide protection only against declines in cattle prices.
Benefits of Choosing Stockguard for LGM
- Flexible coverage options make it possible to tailor your coverage to your operation’s individual needs
- LGM is backed by the Federal Crop Insurance Corporation, so you’ll receive security and reliability
- Coverage is available for cattle producers across the U.S.
- The government subsidizes premium costs up to 50%
- LGM can also be used in combination with a Livestock Risk Protection policy
Don’t wait to protect your operation. Getting started is easy – visit our website or portal today.
We know things can get complicated so let's break it down!
Select Options
Place Order
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Example
In September 2015, an Oklohoma producer buys LGM – Yearling Finishing insurance coverage to market 100 head in March 2016
- Insurance period is October 2015 through August 2016
- Deductible selected is $10/head
- Producer pays a premium of $85/head
- Expected Gross Margin for March is $130.80/head
Example from “Livestock Gross Margin & Livestock Risk Protection.” Oklahoma State University
You can find the needed information in regard to the coverage listed on the RMA website or through our portal at portal.stockguard.io
Remember – finishing yearlings is designed for 750-pound feeder cattle to be finished to 1,250 pounds, and uses a fixed corn amount of 50 bushels.
How to Calculate Expected Gross Margin
Expected Gross Margin = (12.5 x FedCattle$) – (7.5 x FeederCattle$) – (50bu x Corn$)
Expected Gross Margin equals 12.5 (with the 12.5 representing the finished weight of 1250 pounds) times the futures price of Fed Cattle minus 7.5 (with 7.5 representing 750 pound beginning weight) times the futures price of feeder cattle minus 50 bushel corn times the futures corn price.
Gross Margin and Indemnities
RMA calculates Actual Gross Margin of $7.43/head
Indemnity (per head) = ((Expected Gross Margin – Deductible) – Actual Gross Margin)
= (($130.80 – $10 ) – $7.43) = $113.37
Total Indemnity = $113 x 100 head = $11,300
Total Premium = $85 x 20 head = $85,00
Total net gain = $11,300 – $8,500 = $2,800
In March the producer markets 100 head. In this situation the actual gross margin is calculated at $7.43/head and the producer will be entitled to an indemnity calculated as shown below:
