Livestock gross margin (Lgm) Insurance

What is LGM Insurance?

Livestock Gross Margin (LGM) insurance is a federal crop insurance product that provides cattle producers protection against a loss of gross margin incurred while feeding cattle. This gross margin equation is also commonly referred to as the "Cattle Crush".

Gross Margin = (cost of fed cattle) - (cost of feeder cattle + corn)

Why use LGM? 

Cattle feeding involves risk across three major commodities that fluctuate daily

LGM simplifies margin protection: LGM is a unique tool which conveniently bundles three commodities (corn, feeder, and fed cattle) into a single product which is customizable to your marketing plans.

LGM is subsidized and affordable: Protecting comprehensive margin risk across three commodities can be expensive and challenging. Depending on the deductible selected, the USDA subsidizes LGM premiums from 18% to 50% making LGM an affordable avenue to protect operating margins.

Why EastCo Group? 

We are cattle producers who are LGM experts

We know LGM: We understand the importance of protecting your operating margin in volatile market environments and have extensive experience using a variety of risk management tools. Because we follow the cattle operating margin levels daily and have analyzed historic LGM sales period trends, seasonality, and data, we can develop an LGM plan that fits your timing, risk tolerance, and risk management budget.

Coverage Decisions

Expected Gross Margin (EGM): is the projected margin by marketing month and is based off Chicago Mercantile Exchange (CME) futures (EGM formulas below). Using LGM hinges on whether producers like the EGM levels enough to want to protect against a future decline.

Type of LGM policies: Choose either a Yearling Fed or Calf Fed policy.

Yearling Fed LGM:
  • [12.5 cwt*Live Cattle futures - (7.5 cwt*Feeder cattle futures + 50 bu*Corn futures)]
Calf Fed LGM:
  • [11.5 cwt*Live Cattle futures - (5.5 cwt*Feeder cattle futures + 52 bu*Corn futures)]

Select Marketing Months: LGM coverage can begin one month after sign up date. Insureds select which marketing months to participate in. Each sales period offers 11 different marketing months.

Input Target Marketings: Insureds enter how many head they want to insure by marketing month. There are no head count limits. Note: Insureds must have head counts in at least two marketing months per sales period.

LGM Process Overview

1. Sales periods: Sales periods begin at or around 4:30 p.m. CST on the following Fridays and are open until 8 p.m. CST the next day (Saturday).

Sept - 9/25/20
Feb - 02/26/21
Oct - 10/30/20
March - 3/26/21
Nov - 11/20/20
April - 4/30/21
Dec - 12/18/20
May - 05/28/21
Jan - 01/29/21
June - 6/25/21

2. Evaluate EGM Prices: Each sales period, analyze the EGM levels. Consult us on the historical ranges, seasonalities and trends to see if the current EGM is an ideal level to insure in. Configure head counts by marketing months.

3. Application: Producers submit an application for each Sales Period they wish to participate in. See the LGM Application Requirements document for more details. List target marketing head counts by marketing month and select a deductible.

4. Premium: Premiums are billed at the end of the sales period or after the last target marketing month per policy period.

5. Ongoing: Keep records to prove ownership of cattle covered under LGM. Be sure to have packer receipts for claims.

Deductibles

LGM Subsidy Rate
Deductible per Head
18%
-
20%
$10
23%
$20
27%
$30
31%
$40
36%
$50
43%
$60
50%
$70
50%
$80
50%
$90
50%
$100
50%
$110
50%
$120
50%
$130
50%
$140
50%
$150

Indemnity

If at the conclusion of a marketing month the Actual Gross Margin (AGM) is below the EGM and the difference is greater than the deductible + premium, an indemnity is paid out. If the AGM is greater than the EGM, then premium is due.

* This is an information document only and results may vary by individual