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