Dairy Gross Margins Insurance

Provides dairy producers a monthly enrollment opportunity to develop and implement a financial safety-net for their business plan for the year ahead.
Dairy Gross Margins Insurance - Articles
Dairy Gross Margins Insurance

Enrollment periods are last business Friday and following day each month (likely exception, 3rd business Friday and next day in November and December.).

The insurance coverage is based on the producer's amount of milk production and quantity of feed (corn and soybean meal equivalents) valued at Board of Trade (BOT) futures prices.

Example:

Expected Gross Margin - Insurance Guarantee is:

  • milk enrolled (any or all milk expected to be produced; for any or all months available) times the BOT futures price
  • minus feed costs (actual ration or default ration of ½ bu. of corn and 4 lbs. of soybean meal per cwt. of milk) valued at BOT prices (class III milk)

Example:

$ 15.45 Milk 1 cwt. cwt (class III) for 10th (3/2010 with 4/2009 enrollment)

Minus 2.62 Feed cost for 1 cwt of milk using default ((corn=1/2 bu.@$4.18=$2.09) +

$12.83 Expected Gross Margin (soymeal=4 lbs.@$266.30/T.=$0.53))

Actual Gross Margin - Calculated same as Expected Gross Margin but prices are updated using futures prices for current month ((3/2010 at end of 3/2010)

$12.78 Milk 1 cwt. (class III)

Minus 2.30 Feed cost for 1 cwt. of milk ((corn=1/2 bu.@$3.57=$1.79) + $10.48 Expected Gross Margin (soymeal=4 lbs.@$255.77/T.=$0.51))

$2.35 loss payment per 1 cwt milk enrolled for one month

Note

Difference between futures and Gross Margins - Gross margins bundle separate futures contracts on milk, corn and soybean meal.

Improvements Effective Beginning December 17, 2010 include:

  • Available in all contiguous 48 states
  • Deductibles - from zero to $2 /cwt. in $0.10/cwt. intervals
  • Federal premium subsidy if milk is enrolled in at least 2 of the months available for the monthly enrollment period: (deductible/subsidy rate): 0-18%, $0.10-19%, $0.20-21%, $0.30-23%, $0.40-25%, $0.50 -28%, $0.60-31%, $0.70-34%, $0.80-38%, $0.90-43%, $1.00-48%, $1.10 to $2.00-50%
  • Premium payment timing due date - end of coverage period
  • Feed loads amounts/values - increased the maximum feed load amounts/cwt. of milk

For details contact a crop insurance agent.

Authors

Farm Management Risk Management Production Economics

More by Jayson K. Harper, Ph.D.