How is expected gross margin calculated?
Gross margin is the difference between gross revenue and variable costs. Gross revenue is the revenue from selling milk. Variable costs include feed and other costs that occur when producing milk. Class III milk futures represent the price used to calculate expected gross revenue for milk production. Corn futures and soybean meal futures represent the prices used to determine the expected cost of feed needed to produce a hundredweight of milk. LGM-Dairy does not include a factor to represent non-feed variable costs. The Expected Gross Margin (EGM) per hundredweight is then calculated using the appropriate contract month prices for Class III milk futures, corn futures and soybean meal futures. The EGM formula for LGM-Dairy is Expected Milk Price – Expected Cost of Feed. While corn and soybean meal are used to determine the expected cost of feed for LGM-Dairy, many other ingredients are used in dairy rations. Other ingredients used can be converted to corn and soybean meal equivalents us
