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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
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.

Type
Research Article
Copyright
Copyright © Southern Agricultural Economics Association 2014

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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
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