September 16, 2004
Iowa crop insurance agents and pork producers have a new tool to help them make decisions about insuring against revenue losses.
This week, the Center for Agricultural and Rural Development (CARD) at Iowa State University posted a calculator on the CARD Web site developed to give estimates on premiums for different levels of Livestock Gross Margin (LGM) insurance coverage on swine. The calculator is available at http://www.card.iastate.edu/ag_risk_tools/lgm/.
LGM insurance, available in all 99 Iowa counties, is a policy that bundles hog price 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 Corp. of the U.S. Department of Agriculture.
Users of the new CARD tool can estimate insurance premiums for 85, 90, 95, or 100 percent coverage for three different swine types, finish, farrow-to-finish, or segregated early weaning. 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 six-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 12 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."
LGM insurance sales resume Oct. 1. Sales were suspended late last year after a case of mad-cow disease disrupted livestock markets. Changes in livestock risk protection policies have been made. Sales periods have been shortened, and provisions have been added to suspend sales if catastrophic events disrupt futures market prices.