Livestock Gross Margin (LGM) 

LGM-Dairy Cattle (LGM Dairy) provides 

protection against loss of gross margin (market value 

of milk minus feed costs) on milk produced from 

dairy cows. LGM-Dairy uses the Chicago Mercantile 

Exchange Group futures prices for corn, soybean 

meal, and class III milk to determine the expected 

gross margin and the actual gross margin. 

Producer premium subsidy is available for the LGMDairy plan of insurance and is determined by the 

deductible amount chosen by the producer. All 

administrative and operating subsidies are paid by the 

Federal Crop Insurance Corporation. 

The indemnity at the end of the 11-month insurance 

period is the difference, if positive, between the gross 

margin guarantee and the actual gross margin. The 

price the producer receives at the local market is not 

used in these calculations.

Availability 

LGM is available to any producer who owns dairy 

cattle in the 48 contiguous states. 

Milk Coverage Availability 

Only milk sold for commercial or private sale 

primarily intended for final human consumption from 

dairy cattle fed in any of the eligible states is eligible 

for LGM Dairy coverage. There is no minimum 

number of hundredweights a producer can insure. 

However, the maximum amount of milk that can be 

insured is 24 million pounds per crop year. 

Coverage Levels/Deductibles 

Producers can select deductible levels between $0 and 

$2.00 per hundredweight of milk in $0.10 increments. 

Sales Closing 

To enroll, producers must sign-up on the last business 

Friday of the month, submitting an application with a 

target marketing report for the milk and corn and 

soybean meal equivalents to be insured. 

Prices 

Prices for LGM Dairy are based on simple averages 

of futures contract daily settlement prices, and are not

based on the prices the producer receives at the 

market. 

Insurance Months 

The insurance period contains the 11 months 

following sales closing. For example, the insurance 

period for the January 29 sales closing date contains 

the months of February through December. However, 

coverage begins in the second month of the insurance 

period, so the coverage period for this example is the 

months of March through December.

LGM Selling Period 

LGM Dairy is sold on the last business Friday of 

each month. The sales period begins as soon as RMA 

reviews the data submitted by the owner and 

developer of LGM-Dairy after the close of markets on 

the last day of the price discovery period. The sales 

period ends at 8:00 p.m. CST the following evening. 

If expected milk and feed prices are not available on 

the RMA Web site, LGM Dairy will not be offered 

for sale for that insurance period.

Annual Premium 

LGM premiums depend on producers’ marketing 

plan, deductible level, futures and price volatility. 

Premium billing dates are determined by the target 

marketing report and will be the first business day of 

the month following the last month that a producer 

reports their insured marketings in the target 

marketings report. 

Cause of Loss 

LGM Dairy covers the difference between the gross 

margin guarantee and the actual gross margin. LGM 

Dairy does not insure against dairy cattle death loss, 

unexpected decreases in milk production, or 

unexpected increases in feed use. Indemnities to be 

paid will equal the difference between the gross 

margin guarantee and the actual total gross margin for 

the insurance period.

Risk Management Agency Program Aid Number 

United States 

Department of 

Agriculture

Program Aid 

Number 2021

A Risk Management Agency Fact Sheet

Livestock Gross Margin

Dairy Cattle 

July 2011
Risk Management Agency 

LGM Dairy Advantages 

Convenience: Producers can sign up for LGM 

Dairy 12 times per year and insure all their milk 

production they expect to market over a rolling 11-

month insurance period. 

Customization: Can be tailored to any size farm. 

Bundled Option Insurance: LGM Dairy is 

similar to buying both a call option to limit higher 

feed costs and a put option to set a floor on milk 

prices. 

What LGM Dairy Does Not Insure 

 Risk of dairy cattle death

 Unexpected production (milk) losses 

 Unexpected increase in feed use

 Anticipated or multiple-year declines in milk 

prices

 Anticipated or multiple year increases in feed 

costs

Definitions 

Actual Marketings The total amount of milk sold 

by you in each month of the insurance period and 

for which you have proof of sale. Actual marketings 

are used to verify ownership of milk and determine

approved target marketings.

Deductible The portion of the expected gross

margin that you elect not to insure. Per cwt 

deductible amounts range from zero to $2.00 per 

cwt in 10 cent increments. The deductible equals the 

selected per cwt deductible times the sum of target 

marketings across all months of the insurance 

period. 

Gross Margin Guarantee The gross margin

guarantee for an insurance period is the expected

total gross margin for an insurance period minus the 

deductible. 

Marketing Report A report submitted by you on 

our form showing for each month your actual 

marketings for that month of milk insured under the 

policy. The marketing report must be accompanied 

by copies of sales receipts that provide records of 

the actual marketings shown on the marketing 

report.

Target Marketings Your determination as to the

number of cwt of milk you elect to insure in each 

month during the insurance period. 

Target Marketings Report A report submitted by

you on our form showing for each month your target

marketings for that month.

For More Information 

LGM Coverage Prices, Rates and Actual Ending Values: 

http://www3.rma.usda.gov/apps/livestock_reports/ 

Cost Estimator (Premium Calculator): 

http://ewebapp.rma.usda.gov/apps/costestimator/

Where to Purchase

All multi-peril crop insurance policies are available from 

private insurance agents. A list of livestock insurance 

agents is on the RMA Web site at: 

http://www3.rma.usda.gov/tools/agents/ 

Download Copies from the Web

Visit our online publications/fact sheets page at: 

http://www.rma.usda.gov/pubs/rme/fctsht.html

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Office of Civil Rights, 1400 Independence Avenue, S.W., 

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