AEDE Associate Professor Cameron Thraen
and AEDE PhD student John Newton were recently mentioned on the dairy industry website Hoard’s Dairyman, in the August 28, 2012 article “LGM-Dairy contracts available Friday
” for their participation in national dairy industry conversation related to Livestock Gross Margin (LGM-Dairy) insurance for dairy cattle. The LGM-Dairy insurance program, overseen by the USDA’s Risk Management Agency, has generated much discussion in relation to the farm bill and the availability and approval of funding for this risk insurance program. Last week, on Friday, August 31, 2012, the USDA released approximately $2.5 million as part of the 2012 insurance program. Since the federal government’s fiscal year runs from October 1 to September 30, the amount released on Friday is expected to be the last allotment for the 2012 fiscal year.
Data from AEDE PhD student John Newton’s presentation at the 19th Annual National Workshop for Dairy Economists and Policy Analysts in Salt Lake City, Utah, which both Newton and AEDE Associate Professor Cameron Thraen presented findings at in May 2012.As noted in the Hoard’s Dairyman article, LGM-Dairy insurance remains a controversial topic of conversation in the dairy world, “There has been much discussion in the past year about the LGM program for dairy… One point of controversy has been the government subsidy of LGM-Dairy. Once the government funding ran out (as it almost did in just two months this year), no more LGM-Dairy may be licensed.” LGM-Dairy was announced by the USDA as a program in June 2008 and is available for insurance related to swine or cattle. As noted on the USDA website, “the insurance policy uses futures prices and state basis for corn and milk to determine expected and actual gross margin, and may be tailored to any size farming operation.”
Thraen and Newton were recognized in the Hoard’s Dairyman article for their extensive contributions to the topic of the viability of LGM-Dairy insurance, in particular their thorough analysis of the potential benefits and shortfalls of LGM-Dairy coverage. In May 2012, Thraen and Newton gave presentations at the 19th Annual National Workshop for Dairy Economists and Policy Analysts
in Salt Lake City, Utah. Based on the research of an LGM-Dairy Research team composed of Thraen, Newton and colleagues from the University of Minnesota and the University of Wisconsin, at the annual meeting in May, Thraen noted in his workshop presentation some important points regarding LGM-Dairy insurance policy: “With appropriate adjustments to rating methods and the employment of smart insurance policy strategy, LGM can serve as an actuarially fair and effective financial disaster insurance tool; use of LGM requires careful consideration of the firm’s financial structure and risk management goals; and critical further research is needed on tail dependence between milk and feed markets… additional research is also needed on the impact of volatility measures and the term structure of premiums.”
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September 4, 2012