The Livestock Gross Margin for Swine (LGM for Swine) Insurance Policy provides protection against the loss of gross margin (market value of livestock minus feed costs) on swine. The indemnity at the end of the 6-month insurance period is the difference, if positive, between the gross margin guarantee and the actual gross margin. The LGM for Swine Insurance Policy uses futures prices to determine the expected gross margin and the actual gross margin. The price the producer receives at the local market is not used in these calculations.
Any producer who owns swine in any of the 50 states is eligible for LGM Swine insurance coverage.
Only swine sold for commercial or private slaughter primarily intended for human consumption and fed in any of the 50 states are eligible for coverage under the LGM for Swine Insurance Policy. Swine cannot be insured under more than one livestock policy issued under the Act.
LGM for Swine has two key features.
Producers can sign up for LGM for Swine each Thursday and insure all the swine they expect to market over a rolling 6-month insurance period. The producer does not have to decide on the mix of options to purchase, the strike price of the options, or the date of entry.
The LGM for Swine policy can be tailored to any size farm. Options cover fixed amounts of commodities and those amounts may be too large to be used in the risk management portfolio of some farms.
No. LGM for Swine cannot be exercised. LGM works as a bundle of options that pay the difference, if positive, between the value at purchase of the options and the value at the end of a certain time period. So, LGM for Swine would pay the difference, if positive, between the gross margin guarantee and the actual gross margin, as defined in the policy provisions.
No. The prices for LGM for Swine are based on simple averages of futures contract daily settlement prices and are not based on the actual prices the producer receives at the market.
Yes. If an indemnity is due under LGM for Swine coverage, the company will send the producer a notice of probable loss after the last month of the producer’s marketing plan. The last month of the producer’s marketing plan is the last month in which the producer indicated target marketings on the Target Marketing Report.
LGM for Swine is sold every Thursday . The sales period begins when the coverage prices and rates are posted on RMA’s website and ends on the following calendar day at 9:00 AM Central Standard Time. If expected gross margins are not available on the RMA website, LGM for Swine will not be offered for sale for that sales period.
LGM for Swine is available for sale at your authorized crop insurance agent’s office. Crop insurance agents must be certified by an insurance company to sell LGM for Swine and that agent’s identification number must be on file with the Federal Crop Insurance Corporation.
The insurance period contains the 6 months following the sales closing date. For example, the insurance period for any January sales closing date contains the months of February, March, April, May, June, and July. However, coverage begins in the second month of the insurance period, so the coverage period for this example is the months of March through July.
A determination made by the insured as to the maximum number of slaughter ready swine that the producer will market (sell) during the insurance period. The target marketings must be less than or equal to that producer’s applicable approved target marketings as certified by the producer.
The Producer’s Approved Target Marketings are the maximum number of swine that may be stated as Target Marketings on the application. Approved Target Marketings are certified by the producer and are subject to inspection by the insurance company. A producer’s Approved Target Marketings will be the capacity of the producer’s swine operation for the 6-month insurance period as determined by the insurance provider.
Expected corn prices for months in an insurance period are determined using three-day average settlement prices on CME Group corn futures contracts. For months with unexpired corn futures contracts, the expected corn price is the simple average of the CME Group corn futures contract for that month during the expected price measurement period expressed in dollars per bushel. For example, for a sales period beginning on April 28, the expected corn price for July equals the simple average of the daily settlement prices on the CME Group July corn futures contract during the expected price measurement period in this case, the three trading days prior to and including April 28. For months with expired corn futures contracts, the expected corn price is the simple average of daily settlement prices for the CME Group corn futures contract for that month expressed in dollars per bushel in the last three trading days prior to contract expiration. For example, for a sales period beginning on April 28, the expected corn price for March is the simple average of the daily settlement prices on the CME Group March corn futures contract for the three trading days prior to contract expiration. For months without a corn futures contract, the futures prices used to calculate the expected corn price are the weighted average of the futures prices used to calculate the expected corn prices for the two surrounding months which have a futures contract. The weights are based on the time difference between the month and the futures contract months. For example, for the sales period beginning April 28, the expected corn price for June equals one-half times the simple average of the daily settlement prices on the CME Group May corn futures contract during the same expected price measurement, the three trading days prior to and including April 28 plus one-half times the simple average of the daily settlement prices on the CME Group July corn futures contract during the expected price measurement period. See the LGM for Swine Commodity Exchange Endorsement for additional detail on exchange prices.
Expected soybean meal prices for months in an insurance period are determined using three-day average settlement prices on CME Group soybean meal futures contracts. For months with unexpired soybean meal futures contracts, the expected soybean meal price is the simple average of the CME Group soybean meal futures contract for that month during the expected price measurement period in the week of the sales closing date expressed in dollars per ton. For example, for a sales period beginning on April 28, the expected soybean meal price for July equals the simple average of the daily settlement daily settlement prices on the CME Group July soybean meal futures contract during the expected price measurement period, in this case, the three trading days prior to and including April 28. For months with expired soybean meal futures contracts, the expected soybean meal price is the simple average of daily settlement prices for the CME Group soybean meal futures contract for that month expressed in dollars per ton in the last three trading days prior to contract expiration. For example, for a sales period beginning on April 28, the expected soybean meal price for March is the simple average of the daily settlement daily settlement prices on the CME Group March soybean meal futures contract over the last three trading days prior to sales closing. For months without a soybean meal futures contract, the futures prices used to calculate the expected soybean meal price are the weighted average of the futures prices used to calculate the expected soybean meal prices for the two surrounding months which have a futures contract. The weights are based on the time difference between the month and the futures contract months. For example, for a sales period beginning April 28, the expected soybean meal price for June equals one half times the simple average of the daily settlement prices on the CME Group May soybean meal futures contract during the expected price measurement period, the three trading days prior to and including April 28, plus one-half times the simple average of the daily settlement prices on the CME Group July soybean meal futures contract during the same expected price measurement period. See the LGM for Swine Commodity Exchange Endorsement for additional detail on exchange prices.
The actual cost of feed depends on the type of operation. For farrow-to-finish operations, the actual cost of feed equals 12 bushels times the Actual Corn Price plus 138.55 pounds divided by 2000 pounds per ton times the Actual Soybean Meal Price. For finishing feeder operations, the actual cost of feed equals 9 bushels times the Actual Corn Price plus 82 pounds divided by 2000 pounds per ton times the Actual Soybean Meal Price. For finishing SEW operations, the actual cost of feed equals 9.05 bushels times the Actual Corn Price plus 91 pounds divided by 2000 pounds per ton times the Actual Soybean Meal Price.
Expected swine prices for months in an insurance period are determined using three-day average settlement prices on CME Group lean hog futures contracts. For months with unexpired lean hog futures contracts, the expected swine price is the simple average of the CME Group lean hog futures contract for that month during the expected price measurement period expressed in dollars per hundredweight. For example, for a sales period beginning on April 28, the expected swine price for July equals the simple average of the daily settlement prices on the CME Group July lean hog futures contract during the expected price measurement period, in this case, the three trading days prior to and including April 28. For months without a lean hog futures contract, the futures prices used to calculate the expected swine price are the weighted average of the futures prices used to calculate the expected swine prices for the two surrounding months which have a futures contract. The weights are based on the time difference between the month and the futures contract months. For example, for a sales period beginning April 28, the expected swine price for September equals one-half times the simple average of the daily settlement prices on the CME Group August lean hog futures contract during the expected price measurement period, the three trading days prior to and including April 28, plus one-half times the simple average of the daily settlement prices on the CME Group October lean hog futures contract during the same expected price measurement period. See the LGM for Swine Commodity Exchange Endorsement for additional detail on exchange prices.
The target marketings times the expected gross margin per swine for each month of an insurance period and totaled. If the producer from the above example has 10,000 swine to sell in June and an expected gross margin per head of $55, the expected total gross margin would be $550,000 (10,000 x $55 = $550,000).
The expected gross margin per swine in a month for a farrow-to-finish operation is the Expected Swine Price for the month the swine are marketed times the assumed weight of the swine at marketing (2.6 cwt.) times the yield factor (0.74) to convert the price to a live weight basis, minus the Expected Cost of Feed for the month three months prior to the month the swine are marketed.
Expected gross margin per swine for a farrow-to-finish operation =
- (0.74 * 2.6 * Swinet) – (12 * Cornt-3) - ((138.55/2000) * Soybean Mealt-3).
- The expected gross margin per swine in a month for a finishing feeder operation is the Expected Swine Price for the month the swine are marketed times the assumed weight of the swine at marketing (2.6 cwt.) times the yield factor (0.74) to convert the price to a live weight basis, minus the Expected Cost of Feed for the month two months prior to the month the swine are marketed.
Expected gross margin per swine for a finishing feeder operation =
- (0.74 * 2.6 * Swinet) – (9 * Cornt-2) - ((82/2000) * Soybean Mealt-2).
- The expected gross margin per swine in a month for a finishing SEW operation is the Expected Swine Price for the month the swine are marketed times the assumed weight of the swine at marketing (2.6 cwt.) times the yield factor (0.74) to convert the price to a live weight basis, minus the Expected Cost of Feed for the month two months prior to the month the swine are marketed.
Expected gross margin per swine for a finishing SEW operation =
- (0.74 * 2.6 * Swinet) – (9.05 * Cornt-2) - ((91/2000) * Soybean Mealt-2).
The gross margin guarantee for an insurance period is the expected total gross margin for an insurance period minus the deductible times the total of target marketings. If our example producer has a $10 per head deductible, the gross margin guarantee equals $450,000 [$550,000 - (10,000 x $10)].
For months in which a CME Group corn futures contract expires, the actual corn price is the simple average of the daily settlement prices in the last three trading days prior to the contract expiration date for the CME Group corn futures contract for that month expressed in dollars per bushel. For months when there is no expiring CME Group corn futures contract, the actual corn price is the weighted average of the prices on the nearest two contract months. The weights depend on the time between the month in question and the nearby futures contract months. For example, the actual corn price in April is the simple average of the daily settlement prices in the last three trading days prior to the contract expiration date of the corn futures contracts that expire in March and May. For the month of January, the actual corn price will equal two-thirds times the simple average of the daily settlement prices in the last three trading days prior to expiration of the December CME Group corn futures contract plus one-third times the simple average of the daily settlement prices in the last three trading days prior to expiration of the March CME Group corn futures contract.
For months in which a CME Group soybean meal futures contract expires, the actual soybean meal price is the simple average of the daily settlement prices in the last three trading days prior to the contract expiration date for the CME Group soybean meal futures contract for that month expressed in dollars per ton. For months when there is no expiring CME Group soybean meal futures contract, the actual soybean meal price is the weighted average of the prices on the nearest two contract months. The weights depend on the time period between the month in question and the nearby futures contract months. For example, the actual soybean meal price in April is the simple average of the daily settlement prices in the last three trading days prior to the contract expiration date of the soybean meal futures contracts that expire in March and May.
The expected cost of feed depends on the type of operation. For farrow-to-finish operations, the expected cost of feed equals 12 bushels times the Expected Corn Price plus 138.55 pounds divided by 2000 pounds per ton times the Expected Soybean Meal Price. For finishing feeder operations, the expected cost of feed equals 9 bushels times the Expected Corn Price plus 82 pounds divided by 2000 pounds per ton times the Expected Soybean Meal Price. For finishing SEW operations, the expected cost of feed equals 9.05 bushels times the Expected Corn Price plus 91 pounds divided by 2000 pounds per ton times the Expected Soybean Meal Price.
For months in which a CME Group lean hog futures contract expires, the actual swine price is the simple average of the daily settlement prices in the last three trading days prior to the contract expiration date for the CME Group lean hog futures contract for that month expressed in dollars per hundredweight. For months when there is no expiring CME Group lean hog futures contract, the actual swine price is the weighted average of the prices on the nearest two contract months. The weights depend on the time between the month in question and the nearby futures contract months. For example, the actual swine price in March is the simple average of the daily settlement prices in the last three trading days prior to the contract expiration date of the lean hog futures contracts that expire in February and April.
The actual gross margin per swine in a month for a farrow-to-finish operation is the Actual Swine Price for the month the swine are marketed times the assumed weight of the swine at marketing (2.6 cwt.) times the yield factor (0.74) to convert the price to a live weight basis, minus the Actual Cost of Feed for the month three months prior to the month the swine are marketed.
Actual gross margin per swine for a farrow-to-finish operation =
- (0.74 * 2.6 * Swinet) – (12 * Cornt-3) - ((138.55/2000) * Soybean Mealt-3).
- The actual gross margin per swine in a month for a finishing feeder operation is the Actual Swine Price for the month the swine are marketed times the assumed weight of the swine at marketing (2.6 cwt.) times the yield factor (0.74) to convert the price to a live weight basis, minus the Actual Cost of Feed for the month two months prior to the month the swine are marketed.
Actual gross margin per swine for a finishing feeder operation =
- (0.74 * 2.6 * Swinet) – (9 * Cornt-2) - ((82/2000) * Soybean Mealt-2).
- The actual gross margin per swine in a month for a finishing SEW operation is the Actual Swine Price for the month the swine are marketed times the assumed weight of the swine at marketing (2.6 cwt.) times the yield factor (0.74) to convert the price to a live weight basis, minus the Actual Cost of Feed for the month two months prior to the month the swine are marketed.
Actual gross margin per swine for a finishing SEW operation =
- (0.74 * 2.6 * Swinet) – (9.05 * Cornt-2) - ((91/2000) * Soybean Mealt-2).
The actual total gross margin is the sum of the target marketings times the actual gross margin per head of swine for each month of an insurance period. If the producer in the example sold 10,000 head of swine in June and had an actual gross margin per head of swine of $40, the actual total gross margin would be $400,000 (10,000 x $40 = $400,000).
Indemnities to be paid will equal the difference between the gross margin guarantee and the actual total gross margin for the insurance period. The producer in our example would receive an indemnity of $50,000 ($450,000 - $400,000 = $50,000).
This is a continuous policy with twelve overlapping insurance periods per year. Target marketings must be submitted for each sales period in which the producer wishes to establish coverage.
The sales closing dates are every Thursday that is a business day. The Application must be completed and filed not later than the sales closing date of the initial insurance period for which coverage is requested. Coverage for the swine described in the Application will not be provided unless the insurance company receives and accepts a completed Application and a Target Marketings Report, and the company sends the producer a written Summary of Insurance.
Coverage begins one month after the sales closing date. For example, for any January sales closing date, coverage begins on March 1.
The end of insurance for the policy is 6 months after the sales closing date. For example, for any January sales closing date, the insurance period ends on July 31.
The premium billing date is the earlier of the first day of the month following the last month of the insurance period in which you have target marketings or the billing date published in the actuarial documents. For example, if your insurance period is February-July, and you only have target marketings in March-May, your billing date is June 1.
The Application for the LGM for Swine Insurance Policy must contain all the information required by us to insure the gross margin for the animals. Applications that do not contain all social security numbers and employer identification numbers, as applicable (except as stated in the policy), deductible, Target Marketings Report, and any other material information required to insure the gross margin for the animals, will not be acceptable.
Yes. Sales of LGM for Swine may be suspended for the next sales period if unforeseen and extraordinary events occur that interfere with the effective functioning of the corn, soybean meal, or lean hog commodity markets. Coverage may not be available in instances of a news report, announcement, or other event that occurs during or after trading hours that is believed by the Secretary of Agriculture, Manager of the RMA, or other designated RMA staff, to result in market conditions significantly different than those used to rate the LGM for Swine program. In these cases, coverage will no longer be offered for sale on the RMA Website. LGM for Swine sales will resume, after a halting or suspension in sales, at the discretion of the Manager of RMA.
LGM for Swine will not be available for sale for that sales period.
Yes, but only if you have target marketings in at least two (2) months of an insurance period. No subsidy is available if you have only reported one (1) month of target marketings in an insurance period. The subsidy will range from 18 percent with 0 deductible up to 50 percent with a deductible of $12 or greater.