LGM-Dairy Analyzer

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LGM-Dairy Analyzer An Integrated Software System
for Use with LGM-Dairy
Brian W. Gould Department of Agricultural and
Applied Economics Victor E. Cabrera Department
of Dairy Science University of
Wisconsin-Madison University of Wisconsin
Extension June, 2011
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Overview of This Portion of the Presentation

• Provide an overview of the University of
  Wisconsin LGM-Analyzer software system
• Overview of supporting website
• Review of the software system
• Present a simple LGM-Dairy example
• Downloading the example farm Excel file
• Updating the analysis reported here
• Answer any questions with respect to modeling a
  particular contract

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LGM-Dairy Section
Website Address http//future.aae.wisc.edu
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UW LGM-Dairy Integrated Software System
UW Understanding Dairy Markets Database System
LGM Dairy Insurance System Rules
IOFC Estimator
LGM-Dairy Analyzer
UW Feed Converter
Bundled Options
Least-Cost Contract
Premium Estimator
Actual Contract Performance
http//future.aae.wisc.edu/lgm_analyzer/
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UW LGM-Dairy Integrated Software System

• Wisconsins LGM-Dairy Premium Estimator
• Historical and Forward looking web-based premium
  calculator system
• Forward looking Uses previous 3 days futures
  and options data to estimate next months
  LGM-Dairy premiums
• Historical Uses actual premium data to provide
  actual premiums and indemnities (if any)
• Note User supplies desired contract design

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UW LGM-Dairy Integrated Software System
UW Understanding Dairy Markets Database System
LGM Dairy Insurance System Rules
IOFC Estimator
LGM-Dairy Analyzer
UW Feed Converter
Bundled Options
Least-Cost Contract
Premium Estimator
Actual Contract Performance
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UW LGM-Dairy Integrated Software System

• Wisconsins LGM-Dairy Least-Cost Optimization
  web-based software system
• Identifies least-cost contract to achieve desired
  IOFC (GMG) for All Farm milk
• Set target net (of premium and subsidy) IOFC for
  All Farm milk
• Insured milk cwt probably less than All Farm cwt
• Historical and Forward-Looking analyses
• User supplies desired net IOFC for All Farm milk
• Program designs the plan given target net IOFC

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UW LGM-Dairy Integrated Software System
UW Understanding Dairy Markets Database System
LGM Dairy Insurance System Rules
IOFC Estimator
LGM-Dairy Analyzer
UW Feed Converter
Bundled Options
Least-Cost Contract
Premium Estimator
Actual Contract Performance
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UW LGM-Dairy Integrated Software System

• Wisconsins LGM-Dairy Actual Contract Performance
  web-based software system
• Historical analysis Determines what actually
  would have happened if a particular contract had
  been purchased
• Actual premium data used
• Future indemnity estimation Analyzing a
  contract that is not yet complete
• Actual price data used for future contracts
  months that have expired
• Previous days futures contract settlement data
  used to represent actual data that does not exist

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UW LGM-Dairy Integrated Software System
UW Understanding Dairy Markets Database System
LGM Dairy Insurance System Rules
IOFC Estimator
LGM-Dairy Analyzer
UW Feed Converter
Bundled Options
Least-Cost Contract
Premium Estimator
Actual Contract Performance
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UW LGM-Dairy Integrated Software System

• Wisconsins LGM-Dairy Bundled Options Evaluator
• How does LGM-Dairy cost compare with bundled
  options strategy providing similar protection
• Realistic as fixed options contract sizes
  recognized
• Speculation not allowed to determine options
  purchase
• Still in development
• Historical and Future contract analyses can be
  evaluated similar to previous modules

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LGM-Dairy A Simple Example

• Farm characteristics
• 300 milk cows w/24,000 lbs whole herd average
• Estimate premium costs for June 2011 contract
• For simplicity we assume 2,000 lbs/cow/month
• Expected feed use over 10 months
• 840 tons Corn Eq. 120 tons SBM Eq.
• Contract defined by coverage and deductible
• 50 of milk over Aug-Dec 2011
• Base example 1.00 Deductible

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LGM-Dairy A Simple Example

• File can be downloaded from the following
  http//future.aae.wisc.edu/lgm-dairy/WAAE_example.
  csv
• What are the trade-offs between deductible level,
  GMG and net (of subsidy) premium?
• In this case there is substantial difference
  between farm vs. insured production
• 5-Month Farm production 30,000 cwt
• 5-Month Insured production 15,000 cwt
• What are premium and GMG values per cwt for both
  production measures?

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LGM-Dairy A Simple Example
Select Program to Use
Use Previously Saved Farm Data
Identify Contract to Analyze
Select Deductible
Method for Entering Feed
Displayed if looking forward
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Help System
Help on Specific Topics
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LGM-Dairy Example Premium Estimation
50 Allocation Results, 1 Deductible
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? Subsidy w/? Deductible
50 Subsidy
Note Difference in Values
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Covered Milk
Farm Milk
Base Analysis
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Contact Information

• Univ. of Wisconsin Dairy Marketing Website
  http//future.aae.wisc.edu
• Livestock Gross Margin Insurance
  http//future.aae.wisc.edu/lgm_dairy.html
• To join the LGM-Dairy Mailing List
• http//future.aae.wisc.edu/lgm_dairy.html5
• Brian W. Gould Victor E. Cabrera
• [phone] [phone]
• bwgould_at_wisc.edu vcabrera_at_wisc.edu