Livestock Risk Protection
The Livestock Risk Protection insurance plan for Feeder and Fed Cattle is designed to insure against declining market prices. Beef producers may choose from a variety of coverage levels and insurance periods that correspond with the time their cattle would normally be marketed. Beef producers may buy LRP insurance any time throughout the year from Specialty Risk Insurance.
Premium rates, coverage prices, and actual ending values are posted online daily. The beef producer may choose coverage prices ranging from 70 to 100 percent of the expected ending value. At the end of the insurance period, if the actual ending value is below the coverage price, the producer may receive an indemnity for the difference. The LRP-Feeder Cattle policy uses the CME index while the LRP-Fed Cattle policy uses a weekly weighted average reported by the Agriculture Marketing Service (AMS) for actual ending values.
Availability
A Livestock Risk Protection application must be submitted. Once accepted, it is considered a continuous policy. LRP insurance is available in all counties in all 50 states.
The specific coverage endorsements (SCE) are not continuous and are only effective for the period stated. The SCE must be completed annually or multiple times/year for the coverage to be maintained. The beef producer may buy specific coverage endorsements throughout the year with a limit of 12,000 HD/SCE. The annual limit for LRP-Fed and Feeder Cattle is 25,000 head per producer/year (July 1-June 30). Cattle must be owned by the producer at the time of the LRP policy purchase and retained within 60 days prior of the policy end date. Insurance periods offered for 13, 17, 21, 26, 30, 34, 39, 43, 44, and 52-week periods.
Coverage is available for unborn, calves, steers, heifers, predominantly brahman cattle and dairy cattle. The producer may also choose from two feeder weight ranges: under 600 pounds and 600-1000 pounds. Fed cattle weight ranges are from 900-1600 pounds.
LRP is a federally subsidized product. Current subsidy levels are:
| Coverage Level | Subsidy |
|---|---|
| 70-79.99% | 55% |
| 80-84.99% | 50% |
| 85-89.99% | 45% |
| 90-94.99% | 40% |
| 95-100% | 35% |
Five different types of Feeder Cattle are identified under LRP. Terms will vary depending on the type and weight selected.
The market utilized to determine if losses have occurred on a LRP Feeder Cattle policy is the Chicago Mercantile Exchange index (CME). The market utilized to determine if losses have occurred on an LRP Fed Cattle Policy is the Agriculture Marketing Service (AMS). Fed Cattle are expected to carry a yield grade of 1-3 and grade select or higher. The CME index is based on 700-900 weight steers. Any other type/weight chosen will be adjusted in value.
Benefits of LRP
- No bids or spreads to cover
- Limited basis risk coverage – the aggregate cash price used better reflects actual price received
- Any number of head can be covered (up to limits)
- Numerous endorsement period options
- Wider range of target weights than CME
- LRP may be viewed more favorably by lenders than hedging or speculating
It is critical to note that the ending value of the LRP contract is not the cash price received or a closing futures price at the end date of a policy.
| Type: | CWT Range: | % Adjustment from CME |
|---|---|---|
| Steer Wt 1 | 0-5.99 | 110% |
| Steer Wt 2 | 6.00-10.00 | 100% |
| Heifer Wt 1 | 0-5.99 | 100% |
| Heifer Wt 2 | 6.00-10.00 | 90% |
| Brahman Wt 1 | 0-5.99 | 100% |
| Brahman Wt 2 | 6.00-10.00 | 90% |
| Dairy Wt 1 | 0-5.99 | 50% |
| Dairy Wt 2 | 6.00-10.00 | 50% |
| Unborn Steers & Heifers | 0-5.99 | 105% |
| Fed Cattle | 10.0-14.0 | 100% |