Evaluating the Performance of a Completed (Historical) LGM-Dairy Contract

    If you undertake an analysis of an historical (or completed) LGM-Dairy contract, the Premium Estimator will show the actual performance (i.e., whether an indemnity was paid or not). These additional pages will only be shown in the results section so long as the analysis is not concerned with the next LGM-Dairy contract offering.

  1. The first step required in the evaluation of a a completed contract is to input the contract as specified at sign-up.  The easiest method to do this is to obtain your contract specification from the CSV file that you created when you purchased the contract or when you created the example.  In Figure 1, we show the Upload a File button that can be used to access a previously created CSV file that was created by the analsyzer system.  By clicking on this button you have access to the usual File Manager from which you can select your input file.

    Figure 1:  Using the Upload a File Button

    On the left side of Figure 2 shown below, we present an example of a CSV that is created by the Premium Estimator and that can later be used for input.  The first row of this file contains the deductible level (e.g., $1/cwt) and the contract date (June 2011).  The remaining 10 rows contain information necessary to define the LGM-Dairy contract.  Each row pertains to 1 of the 10 months encompassed by the LGM-Dairy contract of concern.  For each row, the 1st element is the approved target marketings for that particular month (cwt), the 2nd and 3rd elements contain the corn and SBM equivalents (Tons) necessary to achieve the approved targeting markets.  The last column of data pertains to the % of monthly approved target marketings to be covered by the LGM-Dairy contract.

    Figure 2:  CSV File Created by Premium Estimator Using the Upload a File Button

  2. For our example, lets assume we purchased a Nov. 2008 LGM contract with the farm and contract design specified in Figure 3.  Per program rules, the first potential month of coverage is January 2009.  The contract is for 10 months ending on Oct. 2009 with varying amounts of insurance coverage over these months.  Over the 10 month period, 41.62% of the total gross margin associated with the approved target marketings were insured.  A $1.00 deductible was chosen.   Default feed coefficients were used to determine feed equivalents.

    Figure 3:  Input Data of a Nov. 2009 Completed LGM-Dairy Insurance Contract

  3. Given that the above LGM-Dairy contract is for a completed contract, the Premium Estimator can access the Actual Class III, Corn and SBM Prices.   These Actual Prices are obtained from the the USDA, Risk Management Agency.     Figure 4 shows the 1stauxillary table associated with the actual contract performance evaluation of this historical LGM-Dairy contract.  

    Figure 4:  Comparison of Actual versus Expected Prices

    In Figure 4 the expected Class III, Corn and SBM prices that existed at sign-up are displayed where these expected prices were obtained on the contract purchase day at the end of November, 2008  From Figure 4, as of June 9th (when this help file was written) ,Actual Prices existed for all contract months.  These values are shown with a red font.

    Given the timing of the purchase of the Nov. 2008 LGM-Dairy contract, there were relatively large increases in SBM feed costs and large decreases in Class III prices between from when Expected Prices obtained at sign-up versus the Actual Prices that occured as the contract matured. Table 1 shows the percentage difference between Expected Prices obtained at sign-up vs. Actual Prices obtained over the Jan-Oct 2009.

    Expected PriceActual Prices% Change
    MonthClass IIICorn SBMClass IIICornSBM Class III %Corn %SBM %
    Jan 2009 14.233.58 259.4310.813.39302.87 -24.0-5.316.7
    Feb 2009 14.153.65 -34.4-3.312.7
    Mar 2009 14.173.71 260.9710.463.67283.70 -26.2-1.18.7
    Apr 2009 14.183.76 262.2810.763.92326.37 -24.14.324.4
    May 2009 14.383.80 263.609.834.17369.03 -31.69.740.0
    Jun 2009 14.763.86 265.289.943.83368.37 -32.7-0.838.9
    Jul 2009 15.163.92 266.979.943.49367.70 -34.4-11.037.7
    Aug 2009 15.483.97 268.5011.213.30387.37 -27.6-16.944.3
    Sep 2009 15.654.03 267.9312.083.10345.27 -22.8-23.128.9
    Oct 2009 15.734.07 263.7712.763.33319.8 -18.9-18.221.2
    Figure 5:  Percent Change in Expected versus Actual Prices

  4. After obtaining the Actual Prices the software has sufficient information to calculate that atual gross margin (AGM) that would have been observed under this contract as well as the indemnities, if any, that would have been observed.  In Figure 6, given the data shown in Figures 3 and 4, the estimated indemnities are presented on both a total and per cwt basis for each of the 21 allowable deductible levels.  For both Indemnity and Net (of subsidized premium) Indemnity we show the Total, per cwt of farm milk, and per cwt of covered milk indemnity values for these deductibles.

    Figure 6:  Estimate of Contract Performance of the Nov. 2009 LGM-Dairy Contract

    In this example, the estimated AGM was determined to be $139,991.  Note that the AGM does not change with the deductible level given that AGM = Actual Milk Revenue - Actual Feed Costs.   Given the dramatic decreases in the Class III price between Expected and Actual Prices over the life of the contract.  From this Figure we obtain a positive net indemnity over all deductible levels.