Livestock Gross Margin Insurance (LGM) is an insurance program through USDA Risk Management Agency (RMA) that offers protection against a decline in the feeding margin for cattle and swine.

The insurance product pays producers an indemnity when the spread between fed cattle sales and feeder cattle and corn input costs narrows due to changing market conditions. With swine, an indemnity is paid based on the sale price of market hogs and corn and soybean meal input costs. Acting as a bundled option, LGM for Cattle comprehensively covers the cost of corn, the cost of feeder cattle, and the fed cattle selling price. Even though price risk is reduced with this coverage, it is not completely eliminated nor are other risks associated with feeding livestock such as death loss or other poor performance.

While LGM protects an insured feeding margin, it does not guarantee insured producers a cash price received. The program grants the right to an indemnity based on the difference between expected and actual gross margins. Producers are still exposed to risk of changes between local cash markets where the livestock are actually sold (using local basis) and the adjusted futures prices (including the policy’s fixed state- and month- specific basis) used to calculate the expected and actual gross margins. This difference is called LGM basis and is important for producers to consider when evaluating a potential hedge with LGM.