Livestock Gross Margin (LGM) For Cattle By Duane Griffith April 2008 Risk Management Agency

Livestock Gross Margin (LGM) For

Cattle

By Duane GriffithApril 2008

Risk Management Agency

LGM Cattle Overview

Available In All Counties In The States Of: CO, IL, IN, IA, KS, MI, MN, MO, MT, NE,

NV, ND, OH, OK, SD, TX, UT, WV, WI, & WY

Coverage For Production And Marketing Risks

Location of Cattle????

LGM Cattle Overview

Protects Against Loss Of Gross Margin Market Value Of Cattle Minus Cost Of Feeder Cattle Minus Cost Of Feed Equals Gross Margin

Expected Values versus Actual Values

LGM Cattle Overview

12 Insurance Periods Each Year Each Insurance Period Runs For 11 Months

Cattle NOT Insured The First Month Of Any Insurance Period

Sales Period Begins The Last Business Day Of The Month Until 9:00 AM CST The Following Day If Expected Gross Margins Not On Website, LGM

Not Offered That Period http://

www.rma.usda.gov/tools/livestock.html

LGM Cattle Overview

Only Authorized Agents May Sell LGM First Day Applications Can Be

Submitted Is January 31 LGM Cattle Is Sold Monthly Thereafter

LGM Cattle Overview

LGM Pays At The End Of 11-month Period If Gross Margin Guarantee – Actual Gross

Margin > 0 Gross Margin Values Determined From

Futures Markets, And State & National Agricultural Statistics

Service Data Actual Price Received Or Paid By

Producer is Not Used In Any Calculation

LGM Commodity Exchange Endorsement

Two Types Of Operations Insured Calf Finishing Yearling Finishing

Provides Tables that: Determine Contract Month You Reference Determine Values Used To Establish

Expected (EGM) And Actual Gross Margin (AGM)

Calf Finishing Operation

Purchases 550-pound Calves And Feed Them Until Slaughter

Assumes: 550-Pound Purchase Weight; And, 1,150-Pound Slaughter Weight

Yearling Finishing Operation

Purchases Yearling Steers And Heifers And Feed Them Until Slaughter:

Assumes: 750-Pound Purchase Weight; And, 1,250-Pound Slaughter Weight

Definitions

Target Marketing Number Of Cattle Elected To Insure In

Each Month During Insurance Period Target Marketing Report

Insured Submits Report Showing Target Marketing For Each Month

Definitions

Approved Target Marketing's Maximum Target Marketing's Allowed Based On The Lesser Of Farm Capacity Or

Underwriting Capacity For The 10 Month Insurance Period

Definitions

Actual Marketing Total Number Cattle Sold In Each Month

Of The Insurance Period Marketing Report

Report Showing Actual Marketing For Each Month; And,

Accompanied By Packer Sales Receipts

Definitions

CBOT Used To Determine Actual & Expected Corn Prices

CME Used To Determine Actual And Expected

Cattle Price Feeder Cattle Price

Basis (Cattle, Feeder Cattle, And Corn) State And Month Specific Estimates Of Differences

Between Local Prices And CME Or CBOT Future Prices

Definitions

Deductible Zero To $150 Per Head In $10

Increments

EGM/Head For Calf Finishing Operations

Expected Cattle Price For State & Month Cattle Are Marketed X 1150 lbs.

Subtract Expected Cost Of Feed Four Months Prior

Subtract Expected Feeder Cattle Price Eight Months Prior X 550 lbs.

=EGM

EGM/Hd For Yearling Finishing Operations

Expected Cattle Price For Month Cattle Are Marketed X 1250 lbs.

Subtract Expected Cost Of Feed Two Months Prior

Subtract Expected Feeder Cattle Price Five Months Prior X 750 lbs.

= EGM

Gross Margin Guarantee

Expected Total Gross Margin (EGM) Minus The Deductible Times The Sum Of Target Marketings

Causes Of Loss Covered

LGM Insures The Difference Between Actual Gross Margin And Gross Margin Guarantee

Must Be Unavoidable Cause Of Loss, As Required By Act

LGM Policy Does Not Insure Against: Death Or Other Loss Or Destruction Of

Cattle, And Any Other Loss Or Damage Of Any Kind

Insurance Period Coverage

Begins One Month And One Day After Closing Date Premium Must be Paid In Full

Coverage Ends The Earliest Of: Last Month With Target Marketings; As Otherwise Stated In The Policy; Or, If The End Date Is Sat. Sun. Or Federal Holiday,

Or Relevant Report Is Not Available To FCIC For That Day Or Any Other Day Of Ending Period, Then Actual Ending Value Will Be Based On Most Recent Reports Made Prior To That Date

Determining Indemnities

Insurance Provider Will Send Notice Of Probable Loss Ten Days After at End of Period

Insured Submits Marketing Report Within 15 Day Of Receipt Of Notice Of Probable Loss

Actual Marketing Are Less Than 75% Of Total Target Marketing, Indemnity is Reduced Percentage By Which Actual Marketing Fell Below

Total Of Target Marketing

Other Insurance

Insured Must Not Obtain Any Other Livestock Insurance Issued Under The Authority Of The Act On Insured Cattle

Policy Does Not Prevent Insured From Obtaining Other Insurance Is Not Issued Under The Authority Of The Act Protects Against Substantially The Same Peril However, The Subrogation Provisions May Apply

Offsetting Transactions

Insured Must Not Enter Into Any Off-setting Financial Transactions Taking An Offsetting Position Of

Commodity Futures Or Options Markets Violation Of The Above Will Result In

Denial Of Indemnity And No Premium Refund Will Be Given

Record Retention

Requirement To Maintain Records For Three Years

Current Year Failure To Keep Such Records Will Result

In No Indemnity Insured Will Still Be Required To Pay All

Premiums Owed

On February 28th Joe Elects To Insure: 500 Head Of Yearling To Finish Cattle

Intended To Be Sold In June; And, 2000 Head Of Yearling To Finish Cattle

Intended To Be Sold In November Joe Chooses A Deductible Of $30 Per

Head

Example Gross Margin Calculations

Joe Farmer, Feb 28th

Expected Live Cattle Price For June $ 95.80 Basis For June Live Cattle Is -$5.52

Expected Feeder Cattle Price January $114.30 Basis For January Feeder Cattle Is -$11.63

Expected Corn Price For April $ 2.14 Basis For April Corn Is -$0.37

Expected June Prices on Feb. 28th

Expected Cost Of Cattle, Feeder Cattle And Corn For Cattle To Be Sold In June

Expected Live Cattle Price $ 95.80

Minus Live Cattle Basis $ -5.52

Equals $ 90.28

Expected Feeder Cattle Price $114.30

Minus Feeder Cattle Basis $ -11.63

Equals $102.67

Expected Corn Price $ 2.14

Minus Corn Basis $ -.37

Equals $ 1.77

Expected Cost Of Feed For Yearling Finishing Operation To Be Sold In June

LGM Estimated Required Bu. of Corn

57.5

Times Expected Corn Price For The Month

$ 1.77

Equals Expected Feed Costs/Head

$101.78

Expected Gross Margin (EGM) Per Head For JuneExpected Cattle Price ($90.28 X 12.5 Hundred Weight)

$1,128.50

Minus Cost Of Feed $101.78

Equals $1,026.72

Minus Expected Feeder Cattle Price ($102.67 X 7.5 Hundred Weight)

$770.03

Equals EGM $256.69

Expected Gross Margin (EGM) June Cattle

Expected Gross Margin June $256.69/Hd X 500 Head Target Marketings

$128,345

Actual Cost Of Cattle, Feeder Cattle And Corn For Cattle To Be Sold In June

Actual Live Cattle Price For June $ 92.40

Plus Basis for June Live Cattle $ -5.52

Equals $ 86.88

Actual Feeder Cattle Price For June

$114.30

Plus Basis For June Feeder Cattle $ -11.63

Equals $102.67

Actual Corn Price For Sept. $ 2.18

Plus Basis For Sept. Corn $ -0.37

Equals $ 1.81

Actual Cost Of Feed For Cattle To Be Sold In June

LGM Estimated Required Bu. of Corn For a Yearling Finishing Operation

57.5 Bu.

Times Actual Corn Price For Month

$ 1.81

Equals Feed Costs Per Head $104.08

Actual Gross Margin (AGM) Per Head For June

Actual Cattle Price ($86.88 X 12.5 Hundred Weight)

$1,086.00

Minus Cost Of Feed $104.08

Equals $981.92

Minus Actual Feeder Cattle Price ($102.67 X 7.5 Hundred Weight)

$770.03

Equals Actual Gross Margin (AGM)

$211.89

November Cattle Example

Expected Live Cattle Price For Nov. $ 91.20 Basis For November Live Cattle Is -$9.61

Expected Feeder Cattle Price in June $105.10 Basis For June Feeder Cattle Is -$11.80

Expected Corn Price For Sept. Is $ 2.30 Basis For Sept. Corn Is -$0.33

Expected November Prices on Feb. 28th

Expected Cost Of Cattle, Feeder Cattle And Corn For Cattle To Be Sold In November

Expected Live Cattle Price $ 91.20

Plus Live Cattle Basis $ -9.61

Equals $ 81.59

Expected Feeder Cattle Price $105.10

Plus Feeder Cattle Basis $ -11.80

Equals $ 93.30

Expected Corn Price $ 2.30

Plus Corn Basis $ -.33

Equals $ 1.97

Expected Cost Of Feed For Cattle To Be Sold In November

LGM Estimated Required Bu. of Corn For A Yearling Finishing Operation

57.5 Bu.

Times Expected Corn Price For Month

$ 1.97

Equals Feed Costs for Cattle Sold in November

$113.28

Expected Gross Margin Per Head For November Cattle

Expected Cattle Price ($81.59 X 12.5 Hundred Weight)

$1,019.88

Minus Cost Of Feed $ 113.28

Equals $ 906.60

Minus Expected Feeder Cattle Price $93.30 X 7.5 Hundred Weight

$ 699.75

Equals Expected Gross Margin-EGM

$ 206.85

Expected Gross Margin (EGM) November Cattle

Expected Gross Margin November Cattle$206.85/Head X 2,000 Head Target Marketings

$413,700

Actual Cost Of Cattle, Feeder Cattle And Corn For Cattle To Be Sold In November

Actual Live Cattle Price For Nov. (½ Based On Oct. And ½ Based On Dec.)

$ 90.65

Plus Basis-November Live Cattle

$ -9.61

Equals $ 81.04

Actual Feeder Cattle Price For June (2/3 Based On May And 1/3 Based On Sept.)

$108.78

Plus Basis For June Feeder Cattle

$ -11.80

Equals $ 96.98

Actual Corn Price For Sept. $ 2.38

Plus Basis For Sept. Corn $ -0.33

Equals $ 2.05

Actual Cost Of Feed For Cattle To Be Sold In November

LGM Estimated Required Bu. of Corn For a Yearling Finishing Operation

57.5 Bu.

Times Actual Corn Price For Month

$ 2.05

Equals Actual Feed Costs/Head-Nov.

$117.88

Actual Gross Margin Per Head For November

Actual Cattle Price ($81.04 X 12.5 Hundred Weight)

$1,013.00

Minus Actual Cost Of Feed $117.88

Equals $895.12

Minus Actual Feeder Cattle Price ($96.98 X 7.5 Hundred Weight)

$727.35

Equals Actual Gross Margin (AGM)

$167.77

June and November Combined

Expected Gross Margin (EGM)

Expected Gross Margin June Cattle$256.69/Hd X 500 Head Target Marketings

$128,345

Expected Gross Margin November Cattle$206.85 X 2,000 Head Target Marketings

$413,700

Total Expected Gross Revenue (EGM)

$542,045

Gross Margin GuaranteeEGM $542,045 Minus ($30/Hd deductible X 2,500 head)

$467,045

Actual Gross Margin (AGM) Per Month

June = Actual Gross Margin Per Head Of $211.89 X Target Marketings (500 Head)

$105,945

November = Actual Gross Margin Per Head Of $167.77 X Target Marketings (2,000 Head)

$335,540

Total June + November AGM $441,485

Indemnity Paid is:

Gross margin guarantee $467,045 minus the actual total gross margin $441,485

$25,560

Questions??

LGM Forms

© 2006 NCIS LGM 47

© 2006 NCIS LGM 48

© 2006 NCIS LGM 49

© 2006 NCIS LGM 50

© 2006 NCIS LGM 51

© 2006 NCIS LGM 52

© 2006 NCIS LGM 53

© 2006 NCIS LGM 54

Definitions

Insurance Period 11 Month Period Stated In Summary

Of Insurance; And, Cattle Are Not Insurable In The First

Month Of Any Insurance Period Crop Year

July 1 Thru June 30; And, Designated By The Year It Ends

[2006-NCIS 916 (Definitions)]

© 2006 NCIS LGM 55

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YEARLING FINISHING

X – A month that contains a futures contract for that commodity

Sales Closing (Red)

Insurance Month (Green – month cattle are marketed)

Live Cattle Price (Blue- Same as insurance date)

Yearling Finishing Feeder Cattle Price (Orange – 5 months prior to insurance date)

Yearling Finishing Corn Price (Yellow – 2 months prior to insurance date)


Sales Closing (Red)





Example Of SCD 3/31 & Insurance Month Of July –

Yearling Finishing

© 2006 NCIS LGM 56

Example Of SCD 3/31 & Insurance Month Of July – Yearling Finishing

Table 1. Cycles within the insurance periods for LGM for Cattle Insurance

Col. 1 Col. 2 Col. 3 Col. 4 Col. 5 Col. 6 Col. 7 Col. 8 Col. 9 Yearling Finishing Calf Finishing

Mar 31 Apr-Feb May May Dec Mar May Sep Jan Jun Jun Jan Apr Jun Oct Feb Jul Jul Feb May Jul Nov Mar Aug Aug Mar Jun Aug Dec Apr Sep Sep Apr Jul Sep Jan May Oct Oct May Aug Oct Feb Jun Nov Nov Jun Sep Nov Mar Jul Dec Dec Jul Oct Dec Apr Aug Jan Jan Aug Nov Jan May Sep Feb Feb Sep Dec Feb Jun Oct

Feeder Cattle Price

Corn Price

Sales Closing Date

Insurance Period

Insurance Month

Live Cattle Price

Feeder Cattle Price

Corn Price

Live Cattle Price

© 2006 NCIS LGM 57

Example Of SCD 3/31 & Insurance Month Of Oct. – Yearling Finishing



Mar 31 Apr-Feb May May Dec Mar May Sep Jan Jun Jun Jan Apr Jun Oct Feb Jul Jul Feb May Jul Nov Mar Aug Aug Mar Jun Aug Dec Apr Sep Sep Apr Jul Sep Jan May Oct Oct May Aug Oct Feb Jun Nov Nov Jun Sep Nov Mar Jul Dec Dec Jul Oct Dec Apr Aug Jan Jan Aug Nov Jan May Sep Feb Feb Sep Dec Feb Jun Oct

Feeder Cattle Price

Corn Price

Sales Closing Date

Insurance Period

Insurance Month

Live Cattle Price

Feeder Cattle Price

Corn Price

Live Cattle Price

© 2006 NCIS LGM 58


Sales Closing (Red)






Sales Closing (Red)





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Example Of SCD 3/31 & Insurance Month Of Oct. –

Yearling Finishing

© 2006 NCIS LGM 59

Example Of SCD 1/31 & Insurance Month Of June – Calf

Finishing



Jan 31 Feb-Dec Mar Mar Oct Jan Mar Jul Nov Apr Apr Nov Feb Apr Aug Dec May May Dec Mar May Sep Jan Jun Jun Jan Apr Jun Oct Feb Jul Jul Feb May Jul Nov Mar Aug Aug Mar Jun Aug Dec Apr Sep Sep Apr Jul Sep Jan May Oct Oct May Aug Oct Feb Jun Nov Nov Jun Sep Nov Mar Jul Dec Dec Jul Oct Dec Apr Aug

Feeder Cattle Price

Corn Price

Sales Closing Date

Insurance Period

Insurance Month

Live Cattle Price

Feeder Cattle Price

Corn Price

Live Cattle Price

© 2006 NCIS LGM 60

Example Of SCD 1/31 & Insurance Month Of June – Calf

Finishing

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CALF FINISHING


Sales Closing (Red)

Insurance Month (Green – Month cattle are marketed)


Calf Finishing Feeder Cattle Price (Pink – 8 months prior to insurance date)

Calf Finishing Corn Price (Purple – 4 months prior to insurance date)


Sales Closing (Red)





© 2006 NCIS LGM 61

Example Of SCD 1/31 & Insurance Month Of Nov. – Calf

Finishing



Jan 31 Feb-Dec Mar Mar Oct Jan Mar Jul Nov Apr Apr Nov Feb Apr Aug Dec May May Dec Mar May Sep Jan Jun Jun Jan Apr Jun Oct Feb Jul Jul Feb May Jul Nov Mar Aug Aug Mar Jun Aug Dec Apr Sep Sep Apr Jul Sep Jan May Oct Oct May Aug Oct Feb Jun Nov Nov Jun Sep Nov Mar Jul Dec Dec Jul Oct Dec Apr Aug

Feeder Cattle Price

Corn Price

Sales Closing Date

Insurance Period

Insurance Month

Live Cattle Price

Feeder Cattle Price

Corn Price

Live Cattle Price

© 2006 NCIS LGM 62

Example Of SCD 1/31 & Insurance Month Of Nov. – Calf

Finishing

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CALF FINISHING


Sales Closing (Red)






Sales Closing (Red)





© 2006 NCIS LGM 63

Definitions (Expected)

Expected Cattle Price (For Months With An Unexpired Futures Contract) Simple Avg. Of CME Live Cattle Futures For

A Month Over Last 3 Days Of Trading In The Month Of The Sales Closing Date

Plus State-Specific Cattle Basis For The Month (Table 2)


© 2006 NCIS LGM 64


Expected Cattle Price (For Months Without A Futures Contract) Weighted Avg. Of CME Live Cattle Futures

Of The Two Surrounding Months With Contracts Over Last 3 Days Of Trading In The Month Of The Sales Closing Date

Plus State-Specific Cattle Basis For The Month (Table 2)


© 2006 NCIS LGM 65


Expected Feeder Cattle Price (For Months With An Unexpired Futures Contract) Simple Avg. Of CME Feeder Cattle Futures

For A Month Over Last 3 Days Of Trading In The Month Of The Sales Closing Date

Plus The State-Specific AND Operation-Specific Feeder Cattle Basis For That Month (Tables 3 & 4)


© 2006 NCIS LGM 66


Expected Feeder Cattle Price (For Months With An Expired Futures Contract) Simple Avg. Of CME Feeder Cattle Futures

For A Month Over Last 3 Days Of Trading Of The Month Prior To Contract Expiration

Plus The State-Specific AND Operation-Specific Feeder Cattle Basis For That Month (Tables 3 & 4)


© 2006 NCIS LGM 67


Expected Feeder Cattle Price (For Months Without A Futures Contract) Weighted Avg. Of CME Feeder Cattle

Futures Of The Two Surrounding Months With Contracts

Refer To Previous Two Slides For Determination Of Prices On Expired & Unexpired Contracts

Plus The State-specific AND Operation-specific Feeder Cattle Basis For That Month (Tables 3 & 4)


© 2006 NCIS LGM 68


Expected Corn Price (For Months With An Unexpired Futures Contract) Simple Avg. Of CBOT Corn Futures For A

Month Over Last 3 Days Of Trading In The Month Of The Sales Closing Date

Plus State-Specific Corn Basis For The Month (Table 5)


© 2006 NCIS LGM 69


Expected Corn Price (For Months With An Expired Futures Contract) Simple Avg. Of CBOT Corn Futures For A

Month Over Last 3 Days Of Trading In The Month Prior To The Futures Contract Expiration



© 2006 NCIS LGM 70


Expected Corn Price (For Months Without A Futures Contract) Weighted Avg. Of CBOT Corn Futures Of The

Two Surrounding Months With Contracts Over Last 3 Days Of Trading In The Month Of The Sales Closing Date



© 2006 NCIS LGM 71


Expected Cost Of Feed Yearling Finishing: 57.5 Bu. X

Expected Corn Price For The Month Calf Finishing: 54.5 Bu. X Expected

Corn Price For The Month


© 2006 NCIS LGM 72


Expected Gross Margin Per Month Expected Gross Margin Per Head For The

Type Of Operation X Target Marketings For That Month

Expected Total Gross Margin Summation Of Each Month’s (In The

Insurance Period) Target Marketings X Expected Gross Margin Per

Head


© 2006 NCIS LGM 73

Definitions (Actual)

Actual Gross Margin Per Head For Yearling Finishing Operations Actual Cattle Price For Month Cattle

Are Marketed X 1250 lbs. Subtract Actual Cost Of Feed Two

Months Prior Subtract Actual Feeder Cattle Price

Five Months Prior X 750 lbs.


© 2006 NCIS LGM 74


Actual Gross Margin Per Head For Calf Finishing Operations Actual Cattle Price For Month Cattle

Are Marketed X 1150 lbs. Subtract Actual Cost Of Feed Four

Months Prior Subtract Actual Feeder Cattle Price

Eight Months Prior X 550 lbs.


© 2006 NCIS LGM 75


Actual Cattle Price Simple Avg. Daily Settlement Prices

Last 3 Trading Days Prior To CME Live Cattle Contract Expiration Date

One-half The Average Of Immediately Surrounding Months When Marketings Fall Into Months Without Futures Contracts

Plus The State-Specific Cattle Basis For The Month (Table 2)


© 2006 NCIS LGM 76


Actual Corn Price Simple Avg. Daily Settlement Prices

($ Per Bushel) Last 3 Trading Days Prior To CBOT Corn

Futures Contract Expiration Date For Months When There Is Not An Expiring

Contract, Use A Weighted Average Of Prices Of The Nearest Two Surrounding Contract Months

Plus The State-specific Corn Basis For The Month (Table 5)


© 2006 NCIS LGM 77


Actual Cost Of Feed Yearling Finishing: 57.5 Bu. X Actual

Corn Price For The Month (Or As Stated In The SPOI’s)

Calf Finishing: 54.5 Bu. X Actual Corn Price For The Month (Or As Stated In The SPOI’s)


© 2006 NCIS LGM 78


Actual Feeder Cattle Price Simple Avg. Daily Settlement Prices

Last 3 Trading Days Prior To CME Feeder Cattle Contract Expiration Date

Weighted Average Of Immediately Two Surrounding Months When Marketings Fall Into Months Without Futures Contracts

Plus The State-Specific Feeder Cattle Basis (Yearling or Calf) For The Month (Tables 3 & 4)


© 2006 NCIS LGM 79


Actual Gross Margin Per Month Actual Gross Margin Per Head For The

Type Of Operation X Target Marketings For That Month

Actual Total Gross Margin Summation Of Each Month’s (In The

Insurance Period) Target Marketings X Actual Gross Margin

Per Head


© 2006 NCIS LGM 80


Actual Marketings Total No. Cattle Sold In Each Month Of

The Insurance Period Proof Of Sales Required

Used To Verify Ownership And Determine Approved Target Marketings


© 2006 NCIS LGM 81

Coverage Availability

Insurance Agent Does Not Have Authority To Bind Coverage

Coverage Will Only Become Effective When Insurance Provider: Notifies Insured In Writing That

Application Has Been Accepted And Approved; And,

Issues Written Summary Of Insurance.

[2005-NCIS 916 2.(b)]

© 2006 NCIS LGM 82


For Subsequent Insurance Periods, Coverage Will Only Be Effective If: There Is Sufficient Underwriting Capacity ;

And, Insurance Provider Issues A Written

Summary Of Coverage To The Insured Available For Sale Only On Business

Days When FCIC’s UCM Web Site Is Operational

[2004-NCIS 916 2.(b)]

© 2006 NCIS LGM 83


Can Be Purchased From Time Starting After Validation Of Prices And Ending On Following Day At 9:00 A.M. Central Time Or As Otherwise Specified In Special Provisions

Coverage May Not Be Available For Purchase: If Expected Gross Margins Are Not Available On RMA

Website; Or, In Instances Of News Report, Announcement, Or Other

Event That Is Believed To Result In Market Conditions Significantly Different Than Those Used To Rate LGM

[2005-NCIS 916 2.(c)]

© 2006 NCIS LGM 84


LGM Sales Will Resume, After A Halting Or Suspension In Sales At Discretion Of Manager Of RMA

Application Must Be Completed Not Later Than The Sales Closing Date Of Each Insurance Period

[2005-NCIS 916 2.(c) & (d)]

© 2006 NCIS LGM 85


No Policy Can Be Sold For Any Month Where: Expected Gross Margins Are Not

Available On RMA Website; Or Price Data Is Not Timely Provided To

FCIC For Validation Before 9:00 AM Close Of Sales Period.

[2005-NCIS 916 2.(a)]

© 2006 NCIS LGM 86


Insurance Provider Will Not Accept Application Or Extend Coverage Unless They Are Notified By FCIC That Underwriting Capacity Is Available

Sales For Year Will Be Suspended Or Terminated If There Is Insufficient Underwriting Capacity

[2005-NCIS 916 2.(a)]

© 2006 NCIS LGM 87

Insurance Coverage

All Cattle Will Be Insured At 100% Share Share Should Be Reflected By The

Number Of Cattle Listed On The Target Marketing

[06-LGM Q&A]

© 2006 NCIS LGM 88

Insurance Coverages

Deductible Amount Must Be Selected By SCD.

Insured May Select Only One Deductible Amount That Is Applicable For All Target Marketings.

Target Marketings Must Be Submitted By SCD For Each Insurance Period Insured Desires Coverage.

[2005-NCIS 916 3.(b), (c), & (d)]

© 2006 NCIS LGM 89

Insurance Coverages

Insured With Yearling Finishing And Calf Finishing Operations: May Have Separate Guarantees And Loss

Payments May Have Separate Deductibles Are Still Limited To 5,000 Head Per

Insurance Period And 10,000 Annually

[06-LGM Q&A]

© 2006 NCIS LGM 90

Insurance Coverages

Target Marketings: For Any Month Cannot Be Greater

Than Approved Target Marketings For Insurance Period;

Are Due At The Time Of Application In Initial Insurance Period; And,

Are Due By SCD In Subsequent Insurance Periods

[2005-NCIS 916 3.(e)]

© 2006 NCIS LGM 91

Insurance Coverages

No Indemnity Will Be Owed But Insured Will Still Be Responsible For Any Premiums Owed If Determined That Insured’s Marketing Report: Is Not Supported By Written Verifiable

Records; And, Fails To Accurately Report Actual

Marketings Or Other Material Information Total Number Of Cattle Insured May Not

Exceed 5,000 Head In Any Insurance Period Or 10,000 Head In Any Insurance Year

[2005-NCIS 916 3.(f) & (g)]

© 2006 NCIS LGM 92

Insurance Coverages

Sales Of LGM For Cattle May Be Suspended If Extraordinary Events Occur That Interfere With Effective Functioning Of Corn, Feeder Cattle , Or Live Cattle Commodity Markets

Evidence Of Such Events May Include, But Is Not Limited To Consecutive: Limit Down Moves In Live Cattle Futures

Markets; Or Limit Up Moves In The Feeder Cattle And/Or

Corn Futures Markets

[2005-NCIS 916 3.(h)]

© 2006 NCIS LGM 93

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YEARLING FINISHING


Sales Closing (Red)






Sales Closing (Red)





SCD 2/28 & Insurance Month of JuneYearling Finishing

Premium Calculation

“Determinant Monte Carlo Simulation Procedure” Used To Calculate Premium

“Black Box”/Calculator Program Used: For Simplicity In Quoting LGM for cattle. Less Room For Error When Completing

Lengthy Calculation Process

SCD 2/28 & Insurance Month Of Jun & Nov. – Yearling Finishing



Feb 28 Mar-Jan Apr Apr Nov Feb Apr Aug Dec May May Dec Mar May Sep Jan Jun Jun Jan Apr Jun Oct Feb Jul Jul Feb May Jul Nov Mar Aug Aug Mar Jun Aug Dec Apr Sep Sep Apr Jul Sep Jan May Oct Oct May Aug Oct Feb Jun Nov Nov Jun Sep Nov Mar Jul Dec Dec Jul Oct Dec Apr Aug Jan Jan Aug Nov Jan May Sep

Feeder Cattle Price

Corn Price

Sales Closing Date

Insurance Period

Insurance Month

Live Cattle Price

Feeder Cattle Price

Corn Price

Live Cattle Price

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YEARLING FINISHING


Sales Closing (Red)






Sales Closing (Red)





SCD Feb. 28th & Insurance Month of June – Yearling Finishing

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YEARLING FINISHING


Sales Closing (Red)






Sales Closing (Red)





SCD Feb. 28th & Insurance Month of November – Yearling Finishing

Definitions

See The LGM For Cattle Commodity Exchange Endorsement For The Value Of All Basis

Insurance Period

Coverage Begins One Month And One Day Following Sales Closing Date Provided Premium Has Been Paid In Full

Coverage Ends The Earliest Of: Last Month With Target Marketings; As Otherwise Stated In The Policy; Or, If The End Date Is Sat. Sun. Or Federal Holiday,

Or Relevant Report Is Not Available To FCIC For That Day Or Any Other Day Of Ending Period, Then Actual Ending Value Will Be Based On Most Recent Reports Made Prior To That Date

Determining Indemnities

Insurance Provider Will Send Notice Of Probable Loss To Insured Approximately Ten Days After All Actual Gross Margins Applicable For Insurance Period Are Released By RMA

Insured Must Submit Marketing Report Within 15 Day Of Receipt Of Notice Of Probable Loss

If Total Of Actual Marketings Are Less Than 75% Of Total Target Marketing, Indemnity Will Be Reduced By Percentage By Which Actual Marketings Fell Below Total Of Target Marketings

Premium Due

For Initial Insurance Period, Premium Is Due With Application For Insurance

For Subsequent Insurance Periods, Premium Is Due: With Target Marketings Report. No Later Than Sales Closing Date (SCD)

The Premium Is Listed On Summary Of Coverage

Documents

Livestock Gross Margin (LGM) For Cattle By Duane Griffith April 2008 Risk Management Agency