Risk Management Tools For Livestock Producers...2020/04/04  · −Producers may have multiple,...

Risk Management ToolsFor Livestock Producers

This institution is an equal opportunity provider and employer

Agenda

Welcome and Introductions

Crop Insurance Overview

Livestock Risk Protection (LRP)

Pasture Rangeland Forage (PRF)

Whole Farm Revenue Protection (WFRP)

2

Beau ReynoldsCrop & Livestock Agent

3

Pendleton, OR

509.778.1886

Beau.Reynolds@northwestfcs.com

Crop & Livestock Agent

Moses Lake, WA

509.431.0284

Bryce.Henderson@northwestfcs.com

Bryce Henderson

❑Sole focus on crop insurance

❑Largest crop insurance provider in the Northwest

❑Agents across the Pacific Northwest

Considerations for livestock producers...

• What risks are you exposed to?− Market decline?

− Lack of precipitation?

− Both?

• Important to know your operation's costs and break-evens

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Livestock

Risk

Protection

(LRP)

Livestock Risk Protection

• Protects against a decline in market price

• Does not cover any peril other than price decline

• Coverage available for:− Feeder Cattle

− Fed Cattle

− Swine and Lamb

• Premium subsidy of 20-35% based on coverage level

Fed Cattle Coverage

• Fed Cattle− Expected to grade select or higher with a yield grade of 1 to 3

− Marketed for slaughter at 10-14 cwt at end of insurance period (live weight basis)

• Fed Cattle Specific Coverage Endorsements (SCE)− Available for 13, 17, 21, 26, 30, 34, 39, 43, 47, or 52-week periods

− Endorsement length determined by anticipated sale date of livestock

− Maximum insured under one SCE is 3,000 head

− Maximum insured during any crop year is 6,000 head

Feeder Cattle Coverage

• Feeder Cattle Types− Steer categories

• <6.0 cwt (for steers and bulls)

• 6.0 to 9.0 cwt (for steers only)

− Heifer categories• <6.0 cwt

• 6.0 to 9.0 cwt

• Feeder Cattle Specific Coverage Endorsements (SCE)− Available for 13, 17, 21, 26, 30, 34, 39, 43, 47, or 52-week periods− Endorsement length determined by anticipated sale date of livestock− Maximum insured under one SCE is 3,000 head− Maximum insured during any crop year is 6,000 head

LRP vs Market Position

• The cost of an option through a futures broker is $25-$100 per contract, depending on service level agreement

• Overall cost of LRP (net of subsidy) is generally less or equivalent to a put option

• Insure as few as one head to 3,000 head on one endorsement

Feeder Cattle Coverage

• Price Adjustment Factors (PAF)− Designed to account for differences between steer prices (5.0 to 9.0 cwt) and prices for other types

and weights of cattle

− PAF’s have been applied to expected ending values published on RMA’s website

• Price Adjustment Factors for weight <6.0 cwt (weight 1)− Steers – 110% of base

− Heifers – 100% of base

− Predominately Brahman – 100%

− Predominately Dairy – 50%

• Price Adjustment Factors for weights 6.0–9.0 cwt (weight 2)− Steers – 100%

− Heifers – 90%

− Predominately Brahman – 90%

− Predominately Dairy – 50%

Actual Ending Value

• Fed Cattle− Price reported by the Agricultural Marketing Service (AMS)

www.ams.usda.gov/mnreport/lm_ct150.txt

− 5-Area Weighted Average Direct Slaughter Cattle Price

− AMS report: For the week containing the ending date of the coverage endorsement

• Feeder Cattle− Weighted average price of feeder cattle as calculated by the CME for Cash-Settled Commodity

Index Prices

− Reported as CME Feeder Cattle Reported Index

− CME Feeder Cattle Reported Index is multiplied by Price Adjustment Factor (PAF)

− Index price report:

www.cme.com/prices/cash-settled_commodity_index_prices.cfm

Fed Cattle - Example

A producer insures 200 steers/heifers expected to weigh 1250 lbswhen marketed in late May of 2020

− A 13-week endorsement is purchased 2/13/20

− Expected Ending Value = $115.666

− Coverage Price Elected = $109.04 (94.27%)

− Net Premium = $3065 (Coverage = $272,600)

− Cost Per Head = $15.32

− Cost Per Cwt = $1.23

Feeder Cattle - Example

A producer insures 250 steers expected to weigh 750 lbs when marketed in late October of 2020

− A 34-week endorsement is purchased 2/13/20

− Expected Ending Value = $149.734

− Coverage Price Elected = $141.78 (94.69%)

− Net Premium = $6,123 (Coverage = $265,838)

− Cost Per Head = $24.49

− Cost Per Cwt = $3.26

Coverage Availability

• Available coverage changes daily

• Daily prices available between 3 pm-7 am the following morning

• Premium is due with application

• Insurance attaches immediately upon RMA’s confirmation of acceptance

• Coverage is not available− Monday mornings, Sundays, or any Federal holiday

− If the website is not operational

− If sales have been halted by the FCIC

− If industry/company capacity has been exceeded

How do you get coverage?

1. Complete LRP application & confirm USDA conservation compliance

2. Book a Specific Coverage Endorsement (SCE) → this is when coverage is put in place− Producers may have multiple, overlapping SCEs but not on the

same livestock

− Producers may have SCEs for multiple types of livestock (feeder cattle, fed cattle, lamb and swine)

• Booking a SCE is time sensitive → DON'T WAIT

Policy Details

• Must have an insurable interest in the livestock being insured

• The same livestock may only be covered under one policy

• You must elect−Number of Head Insured

−Target Weight (in CWT)

−Covered Price (varies by commodity)

−Coverage Length (13- 52 weeks)

• Policy period is July 1–June 30−Can sign up for coverage any day of the year

Offsetting TransactionsNOT ALLOWED

• Insured must not enter into any transaction that would have the effect of converting any portion of the FCIC premium subsidy into funds available for the insured’s use

• Such transactions include covering the insured livestock by taking an offsetting position on the futures or options markets

Termination of Coverage

• If the insured disposes of any portion of his share of the livestock prior to the last 30 days of coverage

− That portion of the coverage terminates

− No indemnity will be paid for that portion

− No premium will be refunded

• Transfers of coverage are available

Pasture

Rangeland

Forage

(PRF)

• Rainfall insurance policy insuring against lack of precipitation

• It is an area-based plan• Coverage is not based

on what happens on your ground

What is PRF?

• Covers both hay and grazing land

• Non-Irrigated and Irrigated

• Premiums are subsidized

Subsidy Levels

Producer makes the following elections

• Coverage Level - 70%, 75%, 80%, 85% or 90%

• Productivity Factor - between 60-150%

• Choose which ground to insure based upon grid maps

• Select intervals and % of total coverage for each interval

How It Works

• A two-month period in which NOAA CPC precipitation amounts are recorded for each grid

• Must select a minimum of two intervals for each grid

• No month can overlap into more than one selected interval• Not all intervals are available in all counties (see actuarial)• Each interval selected is assigned a percentage of the total coverage

NOAA CPC National Oceanic and Atmospheric Administration Climate Prediction Center

Intervals

•Uses NOAA weather station data

•Average precipitation received from 1948 to present

•Data from the 4 closest NOAA weather stations to chosen point of reference in each grid is averaged

Weather Information Collection

• .25 degrees latitude by .25 degrees longitude

− 17 miles x 17 miles at the equator

− Grid sizes will vary due to the curvature of the earth

• Grids do not follow state/county boundaries

• Created by NOAA and assigned a specific grid ID

− Each grid is individually rated based on historical precipitation data for that grid

What is a Grid?

• Insurable acres

• Producer share

• Producer selections for each county/state combination− Grid ID

− Insured Acres

− Crop Type and Irrigated Practice

− Coverage Level

− Productivity Factor

− Index Intervals

What Your Agent Needs

Example – Grazing Land

Example – Haying Land

• Lack of precipitation is the only covered cause of loss

• The insured’s actual production is not considered when calculating an indemnity payment

• Claims are automatically processed during the year once precipitation data is finalized for each interval

• Claim calculations are automated and payout results when precipitation within your insured grid falls below the coverage level elected

Claims Process

Sales Closing (sign-up) deadline• November 15, 2020

Acreage Reporting Date• November 15, 2020

Premium Billing Date• September 1, 2021

Important Dates

Whole Farm

Revenue Protection

(WFRP)

Whole Farm Revenue Protection (WFRP)• What is it?

− Revenue safety net for all commodities grown under the farm entity under one policy

• Umbrella Policy− w/a Revenue Trigger

How WFRP works

• 5 year historical average farm revenue

VS

• Current year's projected revenue

____________________________________

• Insured revenue trigger is based off lower of the two

Historical Revenue & Expenses

Current Year Revenue Projection

Historical AvgRevenue

ProjectedRevenue

Claim Illustration

File taxes, from there look at your revenue to count to see if you will receive an indemnity

Guaranteed amount of insured crop revenue

E.g.- $398,321 – Revenue Trigger

$350,000 – Revenue to Count

$ 49,321 – WFRP claim payment

Important Dates • Sales Closing Date

− Calendar Year Filers 3/15

− Late Fiscal Filers 11/20

• Revised Farm Operation Report – 7/15

• Premium Billing Date - 08/15

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Beau ReynoldsCrop & Livestock Agent Crop & Livestock Agent

Pendleton, OR

509.778.1886

Beau.Reynolds@northwestfcs.com

Moses Lake, WA

509.431.0284

Bryce.Henderson@northwestfcs.com

Bryce Henderson

41

Questions?

42This institution is an equal opportunity provider and employer