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November 16, 2017

January LGM-Dairy Contracts Available November 17

 |  By: Jim Dickrell

Due to a quirk in the calendar, January 2018 Livestock Gross Margin-Dairy contracts will be offered tomorrow, November 17.  That’s because tomorrow is the last business Friday of November due to Thanksgiving next week.

This is also the first time dairy farmers who signed up for the Dairy Margin Protection Program will be eligible to sign up for LGM-Dairy. In the past, these farmers could not participate in LGM-Dairy. (Note: If farmers do sign-up for an LGM-Dairy contract, they will no longer be eligible for MPP coverage.)

Agriculture Secretary Sonny Perdue made the change back in August.

“It is going to be interesting to determine if the demand for LGM-Dairy increases significantly, ceteris paribus (all other things being equal),” says Brian Gould, a dairy economist with the University of Wisconsin.

To date, some 13,000 LGM-dairy contracts have been written since the program started in 2010.  Roughly 10% of those contracts have been “indemnified,” or in other words, paid out an indemnity. That may be a bit of an understatement because there are still contracts written 2017 and 2018 to be completed.

Through 2016, about 12% of the 10,374 contracts written up to that date paid indemnities. But in 2015, when milk prices dropped from all-time highs from the previous year, about 21% of LGM-Dairy contracts paid indemnities.

Many farmers became disillusioned with the MPP in 2015 because payments were made only at the highest margin levels above $7.50 four out of the six indemnity periods. Alfalfa and soybean meal prices had fallen along with milk prices in 2015, reducing the milk-feed margin.