Coverages | LGM for Cattle | LGM for Dairy | Livestock Gross Margin for Hogs

Livestock Gross Margin (LGM)

Hogs | Cattle | Dairy

LGM For Hogs

LGM provides protection for the gross margin between the value of insured hogs and the cost of corn and soybean meal. It covers a decline in hog prices and/or an increase in feed costs. Swine producers in all Iowa counties feeding Iowa hogs are eligible for LGM (producers must have an ownership share in hogs being produced). Producers can choose a deductible of $0 to $20 per head in $2 increments per head.

Determining Coverage

First, determine whether the operation is a Farrow to Finish, a Segregated Early Weaned (SEW), or a Finishing Operation. Next, determine the number of hogs to be marketed each month of the insurance period, then sum the five monthly Gross Margin amounts and subtract the applicable deductible (deductible per head x sum of target marketings) to obtain the insurance period Gross Margin Guarantee:

Farrow to Finish
Gross Margin per Month = (2.5× 0.74 × Lean Hog Price t ) – (13.86 bu. × Corn Price t-3) –
((196.6 lb./2000 lb.) × Soy Meal Price t-3) × Number of Hogs

SEW
Gross Margin per Month = (2.5× 0.74 × Lean Hog Price t) – (9.7 bu. × Corn Price t-2) –
((142 lb./2000 lb.) × Soy Meal Price t-2) × Number of Hogs

Finish
Gross Margin per Month = (2.5× 0.74 × Lean Hog Price t) – (9.6 bu. × Corn Price t-2) –
((132 lb./2000 lb.) × Soy Meal Price t-2) × Number of Hogs

Loss Payments

• Calculate the Actual Gross Margin using the last three trading days prior to each contract’s expiration date.
• Subtract the Total Actual Gross Margin from the Gross Margin Guarantee to obtain the loss payment.
• The price at which hogs are sold does not affect the loss payment.
• Loss payments will be prorated if actual marketings fall below 75% of target marketings.

LGM Coverage Period and Restrictions

• LGM has 12 insurance periods per calendar year.
• Price risk protection lasts for six months (ex: Jan. 31 sales closing date covers Feb. [no cov. in Feb.], - July).
• Target marketings can’t be insured in the first month of the period.
• Price guarantees are based on futures prices and are set the last business day of each month.
• Sales period begins after prices/rates are set by RMA until 9:00 a.m. (Central Standard Time) the next business day.
• Covers up to 15,000 hogs during any six month insurance period and up to 30,000 hogs per crop year.

NOTE: The Livestock Price Reinsurance Agreement allows for Private Reinsured Companies to have limited yearly capacity available on a first come, first served basis.

t = base time, t-2 = base - 2 months, t-3 = base - 3 months

11/30/2004, updated 07/07