LIVESTOCK RISK PROTECTION
LRP provides protection against declining livestock prices if the price, as specified in the policy, drops below the producer’s selected coverage price.
LRP covers a decline in livestock prices.
Producers in all covered states with an ownership share in eligible livestock (see chart below for details).
Coverage prices range from 70% to 100% of daily livestock prices for swine, fed cattle and feeder cattle; and 80% to 95% for lambs. LRP is priced and available for sale continuously throughout the year.
Determining Coverage for LRP
Determine the number of livestock to be marketed and the target weight. Multiply the number of head by the target weight, coverage price and insured share.
LRP Coverage Period and Restrictions
Livestock can be insured for various different weekly increments (see chart below for details).
- Multiply the number of head by the target hundredweight(cwt).
- Subtract the actual ending value from the coverage price (loss payment due if positive).
- Multiply the target weight times the difference between the actual ending value and the coverage price.
- Multiply by the insured share.
- The price at which livestock is sold does not affect the loss payment.
How it works for Swine
Assumptions: Producer expects to market 1,000 head of 2.70 cwt hogs and selects a coverage price of $47.00
1,000 hogs x 2.00 cwt* x $47.00
Actual Ending Value
1,000 hogs x 2.00 cwt x $46.00
Assume 100% Ownership
How it works for Cattle
Assumptions: Producer expects to market 1,000 head of 11 cwt cattle and selects a coverage price of $66.24
|Coverage||1,000 head x 11 cwt* x $66.24||=||$728,640|
|Actual Ending Value||1,000 head x 11 cwt x $65.21||=||$717,310|
|Loss Payment||Assume 100% Ownership||=||$11,330|
How it works for Lamb
Assumptions: Producer expects to market 50 head of 1.30 cwt lamb and selects a coverage price of $85.50
|Coverage||50 lamb x 1.30 cwt* x $85.50||=||$5,558|
|Actual Ending Value||50 lamb x 1.30 cwt x $80.00||=||$5,200|
|Loss Payment||Assume 100% Ownership||=||$358|
Benefits of LRP
- Guaranteed price – no bid-ask spread.
- Limit 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 – producer selects the period that fits his/her risk management plan.
- Wider range of target weights than CME.
- LRP is an insurance policy – LRP may be viewed more favorably by lenders than hedging or speculating (derivative products).
|Topic||Swine||Fed Cattle||Feeder Cattle||Lamb|
|Market||Marketed for slaughter||Marketed for slaughter||Ready to put in feedlot for fattening||Marketed for slaughter|
|Insurable Livestock||Swine that producers expect to have and to market within a range of 1.5 to 2.25 lean cwt target weight (203-304 live cwt)||Steers and heifers that producers expect to grade select or higher, yield grade of 1 to 3, and to market at 10 to 14 cwt (live weight)||Steers (<6.0 cwt for steers and bulls, 6.0-9.0 cwt
for steers only)
Heifers (<6.0 cwt and 6.0-9.0 cwt)
Dairy Cattle (<6.0 for heifers, steers, and bulls
and 6.0-9.0 cwt for heifers and steers)
Brahman Breeds (<6.0 for heifers, steers, and
bulls and 6.0-9.0 cwt for heifers and steers)
|Lambs that producers expect to have and to market within a range of 0.5 and 1.5 cwt target weight at the end of the insurance period|
|Availability||AL, AZ, AR, CA, CO, FL, GA, IA, ID, IL, IN, KS, KY, LA, MI, MN, MO, MS, MT, NC, ND, NE, NM, NV, OH, OK, OR, SC, SD, TN, TX, UT, VA, WA, WI, WV and WY||AL, AZ, AR, CA, CO, FL, GA, IA, ID, IL, IN, KS, KY, LA, MI, MN, MO, MS, MT, NC, ND, NE, NM, NV, OH, OK, OR, SC, SD, TN, TX, UT, VA, WA, WI, WV and WY||AL, AZ, AR, CA, CO, FL, GA, IA, ID, IL, IN, KS, KY, LA, MI, MN, MO, MS, MT, NC, ND, NE, NM, NV, OH, OK, OR, SC, SD, TN, TX, UT, VA, WA, WI, WV and WY||AZ, CA, CO, ID, IN, IL, IA, KS, MI, MN, MO, MT, NE, NM, NV, ND, OH, OK, OR, PA, SD, TX, UT, VA, WA, WV, WI and WY|
|Max. Head Insurable||10,000 per Specific Coverage Endorsement
32,000 per Crop Year
|2,000 per Specific Coverage Endorsement
4,000 per Crop Year
|1,000 per Specific Coverage Endorsement
2,000 per Crop Year
|2,000 per Specific Coverage Endorsement
28,000 per Crop Year
|Insurance Period||13, 17, 21 or 26 weeks||13, 17, 21, 26, 30, 34, 39, 43, 47 or 52 weeks||13, 17, 21, 26, 30, 34, 39, 43, 47 or 52 weeks||13, 20, 26 or 39 weeks|
|Coverage Level||70-100%||70-100%||70-100%||80-95%, in 5% increments|
|Actual Ending Value||Agricultural Marketing Service (AMS) Negotiated and Swine or Pork Market Formula Categories||Agricultural Marketing Service (AMS) 5 Area Weekly Weighted Average Direct Slaughter Cattle – Live Basis Sales, Steers, “35-65% Choice”||Chicago Mercantile Exchange (CME) Feeder Cattle Reported Index multiplied by the Price Adjustment Factor (by type and weight)||Agricultural Marketing Service (AMS) in the “national Weekly Slaughter Sheep Review”|
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