LGM-Dairy Analyzer An Integrated Software System for Use with LGM-Dairy Brian W. Gould Department of Agricultural and Applied Economics Victor E. Cabrera

LGM-Dairy AnalyzerLGM-Dairy AnalyzerAn Integrated Software System An Integrated Software System

for Use with LGM-Dairyfor Use with LGM-DairyBrian W. GouldBrian W. Gould

Department of Agricultural and Applied EconomicsDepartment of Agricultural and Applied Economics

Victor E. CabreraVictor E. CabreraDepartment of Dairy ScienceDepartment of Dairy Science

University of Wisconsin-MadisonUniversity of Wisconsin Extension

June, 2011

Provide an overview of the University of Provide an overview of the University of Wisconsin LGM-Analyzer software systemWisconsin LGM-Analyzer software system Overview of supporting websiteOverview of supporting website Review of the software systemReview of the software system

Present a simple LGM-Dairy examplePresent a simple LGM-Dairy example Downloading the example farm Excel fileDownloading the example farm Excel file Updating the analysis reported hereUpdating the analysis reported here

Answer any questions with respect to modeling Answer any questions with respect to modeling a particular contracta particular contract

Overview of This Portion of the PresentationOverview of This Portion of the Presentation

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Website Address: http://future.aae.wisc.eduWebsite Address: http://future.aae.wisc.edu

LGM-Dairy SectionLGM-Dairy Section

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Bundled Options

Bundled Options

UW Understanding Dairy Markets

Database System


Database System

LGM Dairy Insurance System Rules


http://future.aae.wisc.edu/lgm_analyzer/http://future.aae.wisc.edu/lgm_analyzer/

UW LGM-Dairy Integrated Software SystemUW LGM-Dairy Integrated Software System

UW Feed ConverterUW Feed Converter IOFC EstimatorIOFC Estimator

Actual Contract Performance


Least-CostContract

Least-CostContract

PremiumEstimatorPremiumEstimator

LGM-Dairy AnalyzerLGM-Dairy Analyzer

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Wisconsin’s LGM-Dairy Wisconsin’s LGM-Dairy Premium Estimator HistoricalHistorical and and Forward lookingForward looking web-based web-based

premium calculator system premium calculator system Forward lookingForward looking: Uses previous 3 days futures and ses previous 3 days futures and

options data to estimate options data to estimate next month’snext month’s LGM-Dairy LGM-Dairy premiumspremiums

HistoricalHistorical: Uses actual premium data to provide : Uses actual premium data to provide actual premiums and indemnities (if any)actual premiums and indemnities (if any)

Note: User supplies Note: User supplies desired contract designdesired contract design


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Bundled Options

Bundled Options


Database System


Database System







Least-CostContract

Least-CostContract



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Wisconsin’s LGM-Dairy Wisconsin’s LGM-Dairy Least-Cost OptimizationLeast-Cost Optimization web-based software systemweb-based software system Identifies least-cost contract to achieve desired Identifies least-cost contract to achieve desired

IOFC (GMG) for IOFC (GMG) for All Farm All Farm milkmilkSet target net (of premium and subsidy) IOFC for Set target net (of premium and subsidy) IOFC for

All FarmAll Farm milk milk Insured Insured milkmilk cwt probably less than cwt probably less than All Farm All Farm cwtcwt

HistoricalHistorical and and Forward-LookingForward-Looking analyses analyses User supplies desired User supplies desired net IOFC net IOFC forfor All Farm All Farm

milkmilkProgram designs the plan given target net IOFCProgram designs the plan given target net IOFC


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Bundled Options

Bundled Options


Database System


Database System







Least-CostContract

Least-CostContract



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Wisconsin’s LGM-Dairy Wisconsin’s LGM-Dairy Actual Contract Actual Contract PerformancePerformance web-based software system web-based software system Historical analysisHistorical analysis: Determines what actually : Determines what actually

would have happened if a particular contract had would have happened if a particular contract had been purchasedbeen purchased Actual premium data usedActual premium data used

Future indemnity estimationFuture indemnity estimation: Analyzing a : Analyzing a contract that is not yet completecontract that is not yet complete Actual price data used for future contracts months Actual price data used for future contracts months

that have expiredthat have expired Previous day’s futures contract settlement data used Previous day’s futures contract settlement data used

to represent actual data that does not existto represent actual data that does not exist


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Bundled Options

Bundled Options


Database System


Database System







Least-CostContract

Least-CostContract



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Wisconsin’s LGM-Dairy Wisconsin’s LGM-Dairy Bundled Options Bundled Options EvaluatorEvaluator How does LGM-Dairy cost compare with How does LGM-Dairy cost compare with

bundled options strategy providing similar bundled options strategy providing similar protectionprotection Realistic as fixed options contract sizes recognizedRealistic as fixed options contract sizes recognized Speculation not allowed to determine options Speculation not allowed to determine options

purchasepurchase Still in developmentStill in development

Historical Historical andand Future Future contract analyses can be contract analyses can be evaluated similar to previous modulesevaluated similar to previous modules


LGM-Dairy: A Simple ExampleLGM-Dairy: A Simple Example

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Farm characteristicsFarm characteristics 300 milk cows w/24,000 lbs whole herd average300 milk cows w/24,000 lbs whole herd average

Estimate premium costs forEstimate premium costs for June 2011 June 2011 contract contract

For simplicity we assume 2,000 lbs/cow/monthFor simplicity we assume 2,000 lbs/cow/month Expected feed use over 10 months:Expected feed use over 10 months:

840 tons Corn Eq. 120 tons SBM Eq.840 tons Corn Eq. 120 tons SBM Eq.

Contract defined by % coverage and deductibleContract defined by % coverage and deductible 50% of milk over Aug-Dec 201150% of milk over Aug-Dec 2011 Base example: $1.00 DeductibleBase example: $1.00 Deductible

File can be downloaded from the following File can be downloaded from the following http://future.aae.wisc.edu/lgm-dairy/WAAE_example.csvhttp://future.aae.wisc.edu/lgm-dairy/WAAE_example.csv

What are the trade-offs between deductible level, What are the trade-offs between deductible level, GMG and net (of subsidy) premium?GMG and net (of subsidy) premium?

In this case there is substantial difference In this case there is substantial difference between between farmfarm vs. vs. insuredinsured production production 5-Month5-Month Farm Farm production: 30,000 cwtproduction: 30,000 cwt 5-Month5-Month Insured Insured production: 15,000 cwtproduction: 15,000 cwt

What are premium and GMG values per cwt for What are premium and GMG values per cwt for both production measures?both production measures? 13



Select Program to UseSelect Program to Use

Use Previously Saved Farm DataUse Previously Saved Farm Data

Method for Entering FeedMethod for Entering Feed

Select DeductibleSelect Deductible

Identify Contract to AnalyzeIdentify Contract to Analyze

Displayed iflooking forward

Displayed iflooking forward

Help SystemHelp System

Help on Specific Topics

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50% Allocation Results, $1 Deductible50% Allocation Results, $1 Deductible

LGM-Dairy: Example Premium EstimationLGM-Dairy: Example Premium Estimation

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50% Subsidy50% Subsidy

↑ Subsidy w/↑Deductible

↑ Subsidy w/↑Deductible

Note Difference in ValuesNote Difference in Values

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Farm MilkFarm Milk Covered MilkCovered Milk

BaseAnalysis

BaseAnalysis

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Contact InformationContact Information

Univ. of Wisconsin Dairy Marketing Website: Univ. of Wisconsin Dairy Marketing Website: http://future.aae.wisc.eduhttp://future.aae.wisc.edu

Livestock Gross Margin Insurance: Livestock Gross Margin Insurance: http://future.aae.wisc.edu/lgm_dairy.htmlhttp://future.aae.wisc.edu/lgm_dairy.html

To join the LGM-Dairy Mailing List:To join the LGM-Dairy Mailing List:http://future.aae.wisc.edu/lgm_dairy.html#5http://future.aae.wisc.edu/lgm_dairy.html#5

Brian W. GouldBrian W. Gould Victor E. CabreraVictor E. Cabrera(608)263-3212(608)263-3212 (608)265-8506(608)[email protected]@wisc.edu [email protected]@wisc.edu

Documents

LGM-Dairy Analyzer An Integrated Software System for Use with LGM-Dairy Brian W. Gould Department of Agricultural and Applied Economics Victor E. Cabrera