Agricultural Economics Department
Date of this Version
July 2007
Abstract
Livestock Gross Margin (LGM) Insurance for Swine is an insurance policy first offered in 2002 in Iowa through the United States Department of Agriculture’s Risk Management Agency (RMA). The program was expanded to include several more states for the 2008 crop year which begins July 30, 2007. Prior to the release of LGM, Livestock Risk Protection (LRP) Insurance was also offered to producers as a livestock insurance product (see NebGuide G1723). Unlike LRP which offers single-peril price risk protection for the future selling price of the insured swine, LGM for Swine provides protection against declines in the hog finishing margin. LGM Insurance for Swine creates margin protection by simultaneously hedging the input costs of corn and soybean meal and the market hog selling price as a bundled option. Essentially, LGM for Swine provides insured producers an indemnity when the spread between the market hog selling price and corn and soybean meal input prices narrows due to changing market conditions. As this margin narrows, the insurance indemnity payment becomes larger, to offset lower revenues or increased costs.
Comments
Published in Cornhusker Economics, 07/18/2007. Produced by the Cooperative Extension, Institute of Agriculture and Natural Resources, Department of Agricultural Economics, University of Nebraska–Lincoln.
http://www.agecon.unl.edu/Cornhuskereconomics.html