Lancaster Farming, PA
09-28-07
Agents See Problem With Short Sign-Up Window
CHRIS TORRES
Staff Writer
BOWIE, Md. — A new dairy policy designed to give farmers a safety net against
unexpectedly low profit margins got mixed reviews at a recent insurance industry
meeting here.
The Livestock Gross Margin for Dairy (LGM-Dairy) was formally introduced to
agents at the annual Maryland Crop Insurance Industry Workshop last Thursday,
Sept. 20.
Bruce Babcock, a professor of economics at Iowa State University and one
of the creators of the policy, described it as a “forward looking policy,” one that he
said is “exciting.”
The policy takes the average all-milk price from the Chicago Mercantile
Exchange as well as the state milk price and averages it against corn and
soybean prices from the Chicago Board of Trade, creating an “expected gross
margin” for a farmer based on how many cows they insure for a given period.
If the actual gross margin comes out less than intended, meaning if prices
fluctuate to a point that farmers are actually losing money, they would get a
payment.
“This margin is the most unpredictable costs of their operations,” Babcock said.
Farmers have an option of either signing up for month-to-month coverage to
protect themselves in leaner months or sign up for year-long coverage.
All figures are based on market prices only, not what the farmer actually gets for
their milk at the market. As Babcock puts it, “the coverage moves with the
market.”
“It is a pure risk management tool,” he said.
But some agents at the conference were less than convinced.
One of the main criticisms was the policy’s very short sign-up period. LGM-Dairy
will be sold on the third to last business day of the month. But when it’s made
available — at 4 p.m. that day — the sign up period will only last until 9 a.m. the
next morning.
Babcock said the short sign-up window had to be put in to give the Risk
Management Agency (RMA) ample time to get its pricing information together
and it was the only way federal regulators would agree to sell the program.
Caressa Crone of South Mountain Insurance Services in Pennsylvania, said it
would be logistically impossible to sell a policy to potentially thousands of farmers
with only a few hours time. “I don’t see how we can do it,” she said.
The policy will not cover against sudden cattle loss, unexpected decreases in
milk production or unexpected increases in feed costs.
Wesley Musser of the University of Maryland said the policy has potential but
farmers need to be educated about it first before purchasing it next summer.
He added, “the important part is that it will pay when prices are lower than
expected.”
LGM-Dairy will be made available next July in Pennsylvania, Maryland, New
Jersey, New York and Delaware.