New Calculator Figures Livestock Gross Margin Insurance

Crop insurance agents and cattle producers have a new tool at their disposal to help them make decisions about insuring against losses in revenue.

Published on: Jan 17, 2006

Crop insurance agents and cattle producers have a new tool at their disposal to help them make decisions about insuring against losses in revenue. The Center for Agricultural and Rural Development at Iowa State University expanded its Livestock Gross Margin insurance calculator to give estimates on premiums for different levels of coverage on cattle. The calculator is available at www.card.iastate.edu/ag_risk_tools/.

LGM insurance for cattle, available in 20 states, is a new policy that bundles cattle prices and feed costs to provide protection against the loss of gross margin, calculated as the market value of livestock minus feed costs. The market value is obtained from futures prices, not from local market prices. Coverage is backed by the Federal Crop Insurance Corporation of the USDA. The LGM for cattle coverage is an extension of the type of insurance swine producers have obtained through the original LGM for swine insurance product.

Users of the new CARD tool can estimate insurance premiums at 15 different deductible levels for two different cattle production types: yearling and calf. The user needs to enter the number of head expected to be marketed for each month in the insurance period. The term of coverage is a rolling eleven-month period but there is no coverage the first month of the period. The calculator then estimates the expected gross margin, the insured gross margin, and the premium.

Producers can sign up for LGM twelve times a year and the policy can be tailored to the size of the operation. The sales period begins after validation of market data on the last business day of each month and ends at 9 a.m. the following day. For this reason, the calculator should prove to be a useful tool. "Producers basically have a 12-hour window to decide whether or not to pull the trigger on the insurance product," says CARD Director Bruce Babcock. "We designed the calculator to help put all of the available data in the hands of producers and their crop insurance agents to help them make good decisions about managing risk."