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Livestock Gross Margin–Dairy: An Assessment of Its Effectiveness as a Risk Management Tool and Its Potential to Induce Supply Expansion

Published online by Cambridge University Press:  26 January 2015

Kenneth H. Burdine ,
Yoko Kusunose ,
Leigh J. Maynard ,
Don P. Blayney  and
Roberto Mosheim
Kenneth H. Burdine
Affiliation:
Department of Agricultural Economics, University of Kentucky, Lexington, Kentucky
Yoko Kusunose
Affiliation:
Department of Agricultural Economics, University of Kentucky, Lexington, Kentucky
Leigh J. Maynard
Affiliation:
Department of Agricultural Economics, University of Kentucky, Lexington, Kentucky
Don P. Blayney
Affiliation:
Department of Agricultural Economics and Agricultural Business, New Mexico State University, Albuquerque, New Mexico
Roberto Mosheim
Affiliation:
U.S. Department of Agriculture, Economic Research Service, Washington, DC
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Abstract

An evaluation of the risk-reducing effectiveness of the Livestock Gross Margin–Dairy (LGM-Dairy) insurance program, using historical futures price data, predicts economically significant reductions in downside margin risk (24–41%) across multiple regions. Supply analysis based on the estimated risk reduction shows a small supply response, assuming minimal subsidization. A decomposition of the simulated indemnities into milk price and feed price components shows comovements in futures prices moderating the frequency and levels of indemnities.

Keywords

Dairy Producer Margin Protection ProgramLivestock Gross Margin-Dairymargin insurancepolicy analysisrisk managementQ11Q18
Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 46 , Issue 2 , May 2014 , pp. 245 - 256
Copyright
Copyright © Southern Agricultural Economics Association 2014

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