Managing risk can be confusing, complicated, and unpredictable. Where do you start? What are your options?
LGM’s options include:
Each producer has different risk management needs. When you choose Stockguard for LGM, we’ll work together to tailor your coverage to match your risk tolerance, budget, and needs.
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.
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:
CME:
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.
In September 2015, an Oklohoma producer buys LGM – Yearling Finishing insurance coverage to market 100 head in March 2016
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
Month 2 (November) | Month 3 (December) | Month 4 (January) | Month 5 (February) | Month 6 (March) | Month 7 (April) | Month 8 (May) | Month 9 (June) | Month 10 (July) | Month 11 (August) | |
|---|---|---|---|---|---|---|---|---|---|---|
Expected Gross Margin | -129.70 | -92.45 | -70.90 | 45.60 | 130.80 | 143.15 | 110.55 | 78.40 | 70.97 | 63.50 |
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.
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.
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:
