Livestock Risk Protection

As price volatility in livestock markets seems to dominate more and more every year, some producers may find Livestock Risk Protection (LRP) insurance an option worth exploring.

The USDA Risk Management Agent (RMA) announced some changes have been made to the program. Most notably, the LRP is expanding to include all 50 states. In addition, premium subsidies are increasing from the current level of 13%, to a range of 20% to 35% based on coverage level. This means the price of purchasing the insurance will be lower.

Other changes include an increase in per head limits to 3,000 head per coverage endorsement, and 6,000 head per producer per year.

University of Nebraska farm and ranch management specialist, Jay Parsons, and agricultural economist, Jim Jansen, released an analysis they did of the LRP feeder cattle contract on steer calves weighing less than 600 pounds, from 2009-2018. Over the 10 years they analyzed the data, they report total producer premiums collected exceeded indemnities paid out by an average of $1.15 per hundredweight (cwt).

They stress the primary purpose of LRP insurance is to provide producers with a tool to protect against unexpected downward price movements in the national market.

University of Missouri agricultural economist, Ryan Milhollin, adds the plan covers not only beef, but dairy and other livestock as well. He says in his state use of the program has dropped off, with farmers insuring 5,000 head of feeder calves in 2019, compared to 30,000 head in 2014. USDA underwrites the LRP policies, but producers purchase them from local insurance agents -- usually the same ones who sell crop insurance.

Milhollin says the program is all about risk management. He describes the protection as being similar to a put option on the futures market, with policy coverage fitting the number of weeks a calf herd is held. There are no broker fees. The program covers only market price, not loss by death by disease or lightening.

To insure livestock, producers purchase a specific coverage endorsement (SCE). This requires specifics on the livestock being insured, including number, type and weight; how long the SCE is for in weeks; percent coverage; percent of ownership. Premiums increase with level of coverage and are calculated in a multistep process. Premiums are paid the day the policy is purchased. The feeder cattle policy offers coverage levels of 70% to 100%; with coverage periods ranging from 13 to 52 weeks. The feeders are grouped as either (1) under 600 pounds; or (2) 600-900 pounds. The ending values base is the CME feeder cattle index.

For more information: see https://public.rma.usda.gov/…

(VM/AG)

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