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Livestock Gross Margin-Dairy Insurance: An Assessment of Risk Management and Potential Supply Impacts

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  • Mosheim, Roberto
  • Blaney, Don
  • Burdine, Kenneth H.
  • Maynard, Leigh J.

Abstract

Public risk management policies for dairy producers have the potential to induce expansion in milk supplies, which might lower farm-level prices and offset risk-reduction benefits. An evaluation of USDA’s Livestock Gross Margin-Dairy (LGM-Dairy) insurance program finds economic downside risk significantly reduced, with potential to induce modest supply expansion (0 to 3 percent) if widely adopted. Supply impacts are likely limited due to relatively low participation levels and a minimal (“inelastic”) supply response to risk. LGM-Dairy is more flexible and convenient than other risk management tools, such as hedging directly in futures or options markets, especially for small farms.

Suggested Citation

  • Mosheim, Roberto & Blaney, Don & Burdine, Kenneth H. & Maynard, Leigh J., 2014. "Livestock Gross Margin-Dairy Insurance: An Assessment of Risk Management and Potential Supply Impacts," Economic Research Report 164606, United States Department of Agriculture, Economic Research Service.
    • Handle: RePEc:ags:uersrr:164606
    DOI: 10.22004/ag.econ.164606
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    References listed on IDEAS

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    1. Gould, Brian W. & Cabrera, Victor E., 2011. "USDA's Livestock Gross Margin Insurance for Dairy: What Is It and How Can It Be Used for Risk Management," Staff Paper Series 562, University of Wisconsin, Agricultural and Applied Economics.
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    3. Mosheim, Roberto, 2012. "A Quarterly Econometric Model for Short-Term Forecasting of the U.S. Dairy Industry," Technical Bulletins 184305, United States Department of Agriculture, Economic Research Service.
    4. Buschena, David E. & McNew, Kevin, 2005. "An Exploration of Market Pricing Efficiency: The Dairy Options Pilot Program," 2005 Annual meeting, July 24-27, Providence, RI 19271, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Liang, Yan & Miller, J. Corey & Harri, Ardian & Coble, Keith H., 2011. "Crop Supply Response under Risk: Impacts of Emerging Issues on Southeastern U.S. Agriculture," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 43(2), pages 1-14, May.
    6. Leigh J. Maynard & Christopher Wolf & Matthew Gearhardt, 2005. "Can Futures and Options Markets Hold the Milk Price Safety Net? Policy Conflicts and Market Failures in Dairy Hedging," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 27(2), pages 273-286.
    7. Bozic, Marin & Newton, John & Thraen, Cameron S. & Gould, Brian W., 2012. "Mean-reversion in Income over Feed Cost Margins:Evidence and Implications for Managing Margin Risk by U.S. Dairy Producers," Staff Papers 132379, University of Minnesota, Department of Applied Economics.
    8. William Lin & Robert Dismukes, 2007. "Supply Response under Risk: Implications for Counter-Cyclical Payments' Production Impact," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 29(1), pages 64-86.
    9. Bakhshi, Samira & Kerr, William A., 2009. "Is There Supply Distortion In The Green Box? An Acreage Response Approach," Working Papers 51093, Canadian Agricultural Trade Policy Research Network.
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    Citations

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    Cited by:

    1. Vincent Chatellier, 2017. "International, European and French trade in dairy products: trends and competitive dynamics," Working Papers SMART 17-05, INRAE UMR SMART.
    2. MacDonald, James M. & Cessna, Jerry & Mosheim, Roberto, 2016. "Changing Structure, Financial Risks, and Government Policy for the U.S. Dairy Industry," Economic Research Report 262200, United States Department of Agriculture, Economic Research Service.
    3. Mane, Ranjitsinh & Watkins, Bradley, 2016. "Stochastic Analysis of Margin Protection (MP) Crop Insurance in Arkansas Rice Production," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 229877, Southern Agricultural Economics Association.
    4. Loughrey, J. & Thorne, F. & Kinsella, A. & Hennessy, T. & O'Donoghue, C. & Vollenweider, X., 2015. "Market risk management and the demand for forward contracts among Irish dairy farmers," International Journal of Agricultural Management, Institute of Agricultural Management, vol. 4(4), July.
    5. Mark, Tyler B. & Burdine, Kenneth, 2015. "Will the New Dairy Margin Protection Program Reduce Risk for Dairies?," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196878, Southern Agricultural Economics Association.
    6. Erickson, Kenneth W. & Featherstone, Allen M. & Subedi, Dipak & Nehring, Richard F. & Harris, James Michael, 2017. "How Fluctuations in Farm and Off-Farm Income Could Affect the Financial Performance of U.S. Farm Operator Dairy Farms: A Farm-level Analysis," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258488, Agricultural and Applied Economics Association.
    7. Mark, Tyler B. & Burdine, Kenneth H. & Cessna, Jerry & Dohlman, Erik, 2016. "The Effects of the Margin Protection Program for Dairy Producers," Economic Research Report 262192, United States Department of Agriculture, Economic Research Service.

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    Keywords

    Agricultural and Food Policy; Livestock Production/Industries;

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