Livestock Gross Margin for Dairy Cattle

LGM Analyzer

Software Overview
Premium Estimator
Least Cost Optimizer
Bundled Options
Tutorial

Overview

The LGM-Analyzer is a software suite developed at the University of Wisconsin that can be used to assist in the use of the Livestock Gross Margin for Dairy (LGM-Dairy) insurance program for revenue risk management. The user can evaluate the performance and cost of LGM-Dairy either using historical data or in anticipation of the upcoming LGM-Dairy contract offering the cost of a yet to be LGM-Dairy offering.

The LGM-Analyzer Suite of Programs

There are currently three seperate programs that comprise the LGM-Analyzer suite. T hese programs are the: (i) LGM-Dairy Premium Estimator, (ii) LGM-Dairy Optimizer and (iii) Bundled Options Estimator. Below is a brief description of each of these software systems. Although the above three programs are standalone the input data is shared across application and thus minimizing duplicate data entry.

The Premium Estimator: This program can be used if you want to estimate LGM-Dairy premiums for a user-defined LGM-Dairy contract. An LMG-Dairy contract is specified by the % of production insured each month over the life of the contract and deductible level.
The LGM-Dairy Least Cost Optimizer: Select this if you want to minimize the premium costs for attaining a pre-defined level of target Income over Feed Cost (IOFC) for all milk produced on-farm. Note that for some target IOFC's less than 100% of milk will need to be insured to achieve the total target IOFC. In contrast to the Premium Estimator when using the Optimizer, the user does not supply the contract. The Optimizer designs the least cost contract for you.
Bundled Options Comparison: This software can be used to compare the cost of using a traditional bundled options strategy to establish a similar level of IOFC floor as provided by a particular LGM-Dairy contract design. Under the bundled options strategy, Class III puts are used to establish a revenue minimum and corn/SBM call options are used to establish a feed cost ceiling. With the establishment of a revenue minimum and a feed cost maximum, the producer has established a minimum IOFC. When the options contracts mature, the value of the options will be added to help offset the options premium costs.

Topic Specific Help Documents

Using the Premium Estimator

Using the Least Cost Optimizer

Bundled Options Cost Comparison

How to Evaluate Contract Perfomance for an Active LGM-Dairy Contract

Evaluating Actual Contract Performance for a Completed LGM-Dairy Contract

If you have saved CSV data from a previous run, you can upload it instead of typing in your farm's data again

Input

Insurance contract month:

Choose your deductible level $/cwt

Feed Values: Enter Manually Lowest Allowed Default Highest Allowed

Target NIOFC: $ /cwt

Overprotect?

Please wait...

The prices we use for the Gross Margin Calculation correspond to future and option prices retrieved on the trade dates:

Results from the Optimizer

	Premium ($)	GIOFC ($)	NIOFC ($)
Gross
Per Farm Milk
Per Covered Milk

Coverage Month		Production (cwt)		Corn Equiv (tons)		Soybean Meal Equiv (tons)		% covered	Monthly Gross Margin
Month Year		Milk Qty.	Covered Milk × Expected Price = Milk Revenue	Corn Qty.	Covered Corn × Expected Price = Corn Cost	SBM Qty.	Covered SBM × Expected Price = SBM Cost		Milk Revenue - Corn Cost - SBM Cost - (Deductible × Milk Qty.)	$/cwt of Farm Milk	$/cwt of Covered Milk
Jul 2013			cwt × $ /cwt = $		tons × $/bu = $		tons × $/ton = $
Aug 2013			cwt × $ /cwt = $		tons × $/bu = $		tons × $/ton = $
Sep 2013			cwt × $ /cwt = $		tons × $/bu = $		tons × $/ton = $
Oct 2013			cwt × $ /cwt = $		tons × $/bu = $		tons × $/ton = $
Nov 2013			cwt × $ /cwt = $		tons × $/bu = $		tons × $/ton = $
Dec 2013			cwt × $ /cwt = $		tons × $/bu = $		tons × $/ton = $
Jan 2014			cwt × $ /cwt = $		tons × $/bu = $		tons × $/ton = $
Feb 2014			cwt × $ /cwt = $		tons × $/bu = $		tons × $/ton = $
Mar 2014			cwt × $ /cwt = $		tons × $/bu = $		tons × $/ton = $
Apr 2014			cwt × $ /cwt = $		tons × $/bu = $		tons × $/ton = $
Total	Farm	cwt		tons		tons		%	GMG
	Covered	cwt		tons		tons		%	GMG
	Weighted Avg Price	$/cwt		$/bu		$/tons

Save Input Calculate LGM Premium Calculate Options Cost Save GMG Calculations

Go back to the input Form

Summary

Unit	Premium	GMG	Net GMG
Total ($)
Per cwt of Farm Milk ($/cwt)
Per cwt of Covered Milk ($/cwt)

Save GMG Calculations and Results

Sensitivity Analysis

Deductible Level ($/cwt)	% Net Prem. change	% GMG Change
0.0	-	-
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0

Go back to the input Form

Actual Gross Margin

We have the actual data for the entire LGM-Dairy contract. This implies that the indemnity shown below would have been the actual indemnity.

Coverage Month	Expected Prices			Actual or Projected Prices
Coverage Month	Class III ($/cwt)	Corn ($/bu)	SBM ($/ton)	Class III ($/cwt)	Corn ($/bu)	SBM ($/ton)
Jul 2013
Aug 2013
Sep 2013
Oct 2013
Nov 2013
Dec 2013
Jan 2014
Feb 2014
Mar 2014
Apr 2014

Your projected actual gross margin is $. The following is the sensitive analysis table obtained by varying the deductible levels:

Deductible ($/cwt)	GMG ($)	Premium ($)	Subsidized Premium ($)	AGM ($)	Indemnity			Net Indemnity
Deductible ($/cwt)	GMG ($)	Premium ($)	Subsidized Premium ($)	AGM ($)	Total Farm ($)	per Farm Milk ($/cwt)	per Covered Milk ($/cwt)	Total Farm ($)	per Farm Milk ($/cwt)	per Covered Milk ($/cwt)
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0

Go back to the input Form

Options

Save Options Calculations and Results

Insured Months	Milk Puts				Corn Calls					Soybean Meal Calls
Insured Months	Expected Price	Strike Price	Premium	No. of Contracts	Expected Price	Strike Price	Premium	Option contract purchase month	No. of Contracts	Expected Price	Strike Price	Premium	Option contract purchase month	No. of Contracts
Jul 2013
Aug 2013
Sep 2013
Oct 2013
Nov 2013
Dec 2013
Jan 2014
Feb 2014
Mar 2014
Apr 2014

Insured Months	Milk Puts					Corn Calls					Soybean Meal Calls
Insured Months	Strike Price	Actual Price	Put Value	Premium	Net Premium	Strike Price	Actual Price	Put Value	Premium	Net Premium	Strike Price	Actual Price	Put Value	Premium	Net Premium
Jul 2013
Aug 2013
Sep 2013
Oct 2013
Nov 2013
Dec 2013
Jan 2014
Feb 2014
Mar 2014
Apr 2014

Options Cost

Insured Months	Milk Puts					Corn Calls					Soybean Meal Calls					Total Cost	Net Total Cost
Insured Months	Premium ($/cwt)	Net Premium ($/cwt)	Quantity (cwt)	Total ($)	Net Total ($)	Premium ($/bu)	Net Premium ($/cwt)	Quantity (tons)	Total ($)	Net Total ($)	Premium ($/ton)	Net Premium ($/cwt)	Quantity (tons)	Total ($)	Net Total ($)	Total Cost	Net Total Cost
Jul 2013
Aug 2013
Sep 2013
Oct 2013
Nov 2013
Dec 2013
Jan 2014
Feb 2014
Mar 2014
Apr 2014

So, the total options cost is $ and the net total options cost is $ at an Income over Feed Cost of $. The LGM premium is $ for a GMG of $.

Sensitivity Analysis

Deductible Level ($/cwt)	% Option Costs/cwt change	% IOFC Change
0.0	-	-
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0

Go back to the input Form

Deductible Level ($/cwt)	% Net Prem. change	% GMG Change
0.0	-	-
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0

Deductible Level ($/cwt)	% Option Costs/cwt change	% IOFC Change
0.0	-	-
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0

Deductible Level ($/cwt)	% Net Prem. change	% GMG Change
0.0	-	-
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0

Deductible Level ($/cwt)	% Option Costs/cwt change	% IOFC Change
0.0	-	-
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0

Deductible Level ($/cwt)	% Net Prem. change	% GMG Change
0.0	-	-
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0

Deductible Level ($/cwt)	% Option Costs/cwt change	% IOFC Change
0.0	-	-
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0