By Leonard Polzin
Introduction
Livestock Gross Margin Insurance for Dairy Cattle (LGM-Dairy) is a federal crop insurance product that protects dairy producers against a decline in the expected gross margin between milk revenue and feed cost. The program was first made available in 2008 and is administered by the USDA Risk Management Agency (RMA) under the Federal Crop Insurance Corporation (FCIC). LGM-Dairy coverage is sold by private crop insurance agents, underwritten by FCIC, and is broadly available across the country, including all of Wisconsin. Producers should confirm current state and county availability with an approved insurance provider.
This article describes how LGM-Dairy works, what it covers, how the premium and subsidy are structured, and the key rule changes that take effect for the 2026 and succeeding crop years. LGM-Dairy is one of several federal dairy risk management programs, and a short section at the end of this paper describes how it relates to Dairy Margin Coverage (DMC) and Dairy Revenue Protection (DRP).
What LGM-Dairy Covers
LGM-Dairy insures the gross margin between the market value of milk and the cost of feed. Gross margin under LGM-Dairy is defined using CME Group futures prices, not the prices a producer actually receives or pays locally. LGM-Dairy uses a single pricing approach based on CME Class III milk futures and CME corn and soybean meal futures. Unlike Dairy Revenue Protection, LGM-Dairy does not offer a Class IV pricing option, a class-weighting election, or a component pricing option. The pricing methodology is fixed. Specifically:
- The expected and actual milk price is the simple average of the daily settlement prices of the CME Class III milk futures contract over a defined three-day price measurement period. For expected prices, this is the three trading days before and including the sales closing date. For actual prices, this is the last three trading days before the contract’s last trading day. The result is a simple average of those three daily settlements, not a volume-weighted average.
- The expected and actual corn price is based on CME corn futures contract settlement prices, averaged across the same three-day measurement periods. For months that do not have a corn futures contract expiring, the corn price is the weighted average of the surrounding contract months.
- The expected and actual soybean meal price is based on CME soybean meal futures contract settlement prices, averaged across the same three-day measurement periods. For months that do not have a soybean meal futures contract expiring, the soybean meal price is the weighted average of the surrounding contract months.
If the actual total gross margin for the insurance period is less than the gross margin guarantee, the producer receives an indemnity equal to the shortfall. The indemnity is paid once, at the end of the insurance period, based on actual marketings reported by the producer.
Source : wisc.edu