What is it?

Livestock Gross Margin (LGM) is a subsidized Federal Crop Insurance program available to anyone who owns and feeds cattle to finished weights. The program has been available since 2008 with significant changes made in 2020. LGM is now positioned to become a substantial contributor in the overall risk management strategies utilized by feed yards and individual cattle feeders. The program’s goal is to offer a packaged risk management tool which assists in the management of market risks associated with cattle on feed and protect minimum expected gross feeding margins.

How does it work?

LGM provides an adjustable mirror to futures contracts that make up the typical “Crush” positions when hedging fed cattle. It does not actually purchase futures positions as part of the insurance policy. Your upside potential remains intact when LGM is used apart from futures contracts. LGM offers extremely flexible coverage options allowing the coverage to work either in lieu of futures contracts or alongside hedge positions utilizing futures contracts. LGM premiums are subsidized at levels ranging from 18%-50%. The return on premium investment will vary based on coverage options.

Advantages as the primary strategy:

• Requires no margin calls

• Requires no brokerage account

• Provides downside gross margin protection

• Preserves upside gross margin protection when available

• Historically covers its own costs due to subsidies

Advantages as the secondary strategy:

• Leverage seasonal trends

• Having LGM in place as a supplement to futures contracts provides enormous value without speculative market risk

• Any arrangement of coverage could be expected to be a net income item over time

For more information, contact our office at (580) 454-4367, or complete the form below.