Livestock Risk Protection Livestock Risk Protection Insurance (LRP) OverviewInsurance (LRP) Overview

Bill HalfmanBill HalfmanAg Agent UW-EX Monroe CountyAg Agent UW-EX Monroe County

Paul MitchellPaul MitchellAg and Applied EconomicsAg and Applied Economics

UW-Madison and UW-EXUW-Madison and UW-EX

Kelley BranemanKelley BranemanBadgerland Farm Credit ServicesBadgerland Farm Credit Services

What is LRP?What is LRP? Insurance policy that protects Insurance policy that protects

livestock producers from livestock producers from unexpectedunexpected price declinesprice declines Similar to crop insuranceSimilar to crop insurance Creates “floor” for priceCreates “floor” for price

Because market futures are a major Because market futures are a major factor determining available factor determining available coverage prices, so LRP takes into coverage prices, so LRP takes into account “expected” price changesaccount “expected” price changes

LRP available forLRP available for Feeder calves (8 different types)Feeder calves (8 different types)

Steers, heifers, Braham, or dairySteers, heifers, Braham, or dairy < 600 lbs or 600-900 lbs target weight< 600 lbs or 600-900 lbs target weight

Fed cattle (weighing 1,000 – 1,400 Fed cattle (weighing 1,000 – 1,400 lbs)lbs)

Swine: Market hogs on carcass (lean) Swine: Market hogs on carcass (lean) basebase

LRP – Feeder CattleLRP – Feeder Cattle Available coverage prices range Available coverage prices range

approximatelyapproximately 70-95% of Chicago 70-95% of Chicago Mercantile Exchange (CME) futures Mercantile Exchange (CME) futures priceprice

Policies Policies generallygenerally available for the available for the following weekly lengthsfollowing weekly lengths

13, 17, 21, 26, 30, 34, 39, 43, 47, 5213, 17, 21, 26, 30, 34, 39, 43, 47, 52 Policy Size: 1 to 1,000 head per Policy Size: 1 to 1,000 head per

Specific Coverage Endorsement (SCE)Specific Coverage Endorsement (SCE) 2,000/year maximum (July 1–June 30)2,000/year maximum (July 1–June 30)

LRP recognizes 8 different feeder cattle LRP recognizes 8 different feeder cattle types to adjust available coverage types to adjust available coverage pricesprices

Buy separate policies for each type of Buy separate policies for each type of feeder cattle you insurefeeder cattle you insure

Feeder Cattle TypesFeeder Cattle Types

Weight RangeWeight Range

Price Adjustment Factors (PAF)Price Adjustment Factors (PAF)

SteersSteers HeifersHeifersPredominately Predominately

BrahmanBrahmanPredominately Predominately

DairyDairy

<6.0 cwt<6.0 cwt 110%110% 100%100% 100%100% 100%100%

6.0-9.0 cwt6.0-9.0 cwt 100%100% 90%90% 90%90% 80%80%

LRP – Fed CattleLRP – Fed Cattle Available coverage prices range Available coverage prices range

approximatelyapproximately 70-95% of CME 70-95% of CME futures pricefutures price

Policies Policies generallygenerally available for the available for the following weekly lengthsfollowing weekly lengths

13, 17, 21, 26, 30, 34, 39, 43, 47, 5213, 17, 21, 26, 30, 34, 39, 43, 47, 52 Policy Size: 1 to 2,000 head per SCE Policy Size: 1 to 2,000 head per SCE

with 4,000/year maximumwith 4,000/year maximum

LRP-Swine (Market Hogs)LRP-Swine (Market Hogs) Available coverage prices range Available coverage prices range

approximatelyapproximately 70-95% of CME futures 70-95% of CME futures priceprice

Convert live weight to carcass/lean Convert live weight to carcass/lean weightweight

Carcass/lean weight = 0.74 x live weightCarcass/lean weight = 0.74 x live weight Policies for the following Policies for the following weeklyweekly lengths lengths

13, 17, 21, 2613, 17, 21, 26 Policy size: 1 to 10,000 head per SCE, Policy size: 1 to 10,000 head per SCE,

with 32,000 maximum per yearwith 32,000 maximum per year

How do I buy LRP?How do I buy LRP?1) File LRP insurance application with a certified 1) File LRP insurance application with a certified

agent to establish agent to establish eligibility in advanceeligibility in advanceSS#/employer ID, Demonstrate Substantial Beneficial SS#/employer ID, Demonstrate Substantial Beneficial Interest (minimum of 10% ownership of animals)Interest (minimum of 10% ownership of animals)

2) Watch available prices & premiums, they 2) Watch available prices & premiums, they change dailychange daily, valid from 5 PM to 9 AM next , valid from 5 PM to 9 AM next business daybusiness daywww3.rma.usda.gov/apps/livestock_reports/www3.rma.usda.gov/apps/livestock_reports/lrp_select_criteria.cfmlrp_select_criteria.cfm

3) All coverage periods may not be available due 3) All coverage periods may not be available due to insufficient market datato insufficient market data

4) When you like what you see, file a Specific 4) When you like what you see, file a Specific Coverage Endorsement (SCE) with your agentCoverage Endorsement (SCE) with your agentYou must own livestock when filing SCEYou must own livestock when filing SCE

Specific Coverage Endorsement (SCE) specifies: Specific Coverage Endorsement (SCE) specifies: 1) Actual Coverage Price (chosen price floor)1) Actual Coverage Price (chosen price floor)2) Ending Period (date actual price 2) Ending Period (date actual price calculated)calculated)3) Number (and type) of animals3) Number (and type) of animals4) Target Weight at ending period4) Target Weight at ending period5) Premium due (RMA gives 13% subsidy)5) Premium due (RMA gives 13% subsidy)

RMA may terminate RMA may terminate availabilityavailability at any time (but at any time (but not the existing policies sold)not the existing policies sold)

What is the SCE?What is the SCE?

Feeder Cattle ExampleFeeder Cattle Example

Have 25 steers with 100% ownershipHave 25 steers with 100% ownership Expect to sell in 21 weeks at 1,000 Expect to sell in 21 weeks at 1,000

poundspounds On RMA web site for the day, want the On RMA web site for the day, want the

coverage price of $98.40/cwt for 21 coverage price of $98.40/cwt for 21 weeksweeks

Cost is $1.527/cwt (with 13% subsidy)Cost is $1.527/cwt (with 13% subsidy) $1.527 x 10 cwt = $15.27 per head$1.527 x 10 cwt = $15.27 per head 25 x $15.27 = $381.75 total premium25 x $15.27 = $381.75 total premium

When do I collect an When do I collect an Indemnity?Indemnity?

If the Actual Ending Value the RMA posts on If the Actual Ending Value the RMA posts on the web for the Ending Period you choose is the web for the Ending Period you choose is less than the coverage price you choseless than the coverage price you chose

Not the price you actually receive when sellNot the price you actually receive when sell

NOTE:NOTE: Do not have to sell when SCE expiresDo not have to sell when SCE expires Can hold and insure Can hold and insure qualifyingqualifying animals animals

again after SCE expiresagain after SCE expires

Example IndemnityExample Indemnity Had 25 feeder cattle insured for Had 25 feeder cattle insured for

$98.40/cwt in 21 weeks$98.40/cwt in 21 weeks After 21 weeks, suppose the Actual After 21 weeks, suppose the Actual

Ending Value posted by RMA is Ending Value posted by RMA is $98.10$98.10

Collect ($98.40 - $98.10) = $0.30/cwtCollect ($98.40 - $98.10) = $0.30/cwt $0.30 x 10 cwt = $3.00 per head$0.30 x 10 cwt = $3.00 per head 25 head x $3.00/head = $75.0025 head x $3.00/head = $75.00

Actual price, date, weight Actual price, date, weight ≠≠

LRP price, date, weight LRP price, date, weight

When do you actually sell your When do you actually sell your cattle?cattle?

What price do you actually get? What price do you actually get? What do they actually weigh?What do they actually weigh? Do you hold the cattle and buy LRP-Do you hold the cattle and buy LRP-

Fed Cattle?Fed Cattle?

LRP-Fed Cattle ExampleLRP-Fed Cattle Example

25 cattle to sell at 1200 lbs in 34 weeks25 cattle to sell at 1200 lbs in 34 weeks On RMA web site for the day, want the On RMA web site for the day, want the

coverage price of $68.96/cwt for 34 weekscoverage price of $68.96/cwt for 34 weeks Cost is $1.037/cwt (with 13% subsidy)Cost is $1.037/cwt (with 13% subsidy) $1.037 x 12 cwt = $12.44 per head$1.037 x 12 cwt = $12.44 per head 25 x $12.44 = $311.10 total premium25 x $12.44 = $311.10 total premium

Example IndemnityExample Indemnity Have 25 fed cattle insured at Have 25 fed cattle insured at

$68.96/cwt in 34 weeks$68.96/cwt in 34 weeks After 34 weeks, suppose the Actual After 34 weeks, suppose the Actual

Ending Value posted by RMA is Ending Value posted by RMA is $69.01/cwt$69.01/cwt

Collect no indemnityCollect no indemnity

May actually sell them at 1245 lbs for May actually sell them at 1245 lbs for $69.50/cwt after 35 weeks$69.50/cwt after 35 weeks

Some Benefits of LRPSome Benefits of LRP More attractive to smaller More attractive to smaller

producers than other risk producers than other risk management toolsmanagement tools Small numbers can be hedgedSmall numbers can be hedged No brokerage costs or margin callsNo brokerage costs or margin calls

Premium subsidized 13%Premium subsidized 13% Does not tie you to a specific Does not tie you to a specific

packer or buyer like a forward packer or buyer like a forward contract cancontract can

Benefits ContinuedBenefits Continued Actual selling dates and weights Actual selling dates and weights

can differ from what the SCE can differ from what the SCE specifiesspecifies Do not have to sell when SCE Do not have to sell when SCE

expiresexpires Can hold and insure qualifying Can hold and insure qualifying

animals again after SCE expiresanimals again after SCE expires

Benefits ContinuedBenefits Continued Policy can be transferred to new Policy can be transferred to new

owner if animals sold during owner if animals sold during coveragecoverage

Can assign indemnity to a third Can assign indemnity to a third partyparty Lender for exampleLender for example

If some animals die, report within 72 If some animals die, report within 72 hours when known, and still collect hours when known, and still collect any indemnity for those animalsany indemnity for those animals

Limits to LRPLimits to LRP

If you purchase LRP, cannot enter If you purchase LRP, cannot enter into futures or options on the same into futures or options on the same animalsanimals

Must own the animals when file the Must own the animals when file the SCESCE

Lose LRP coverage and premium if Lose LRP coverage and premium if sell earlier than 30 days before SCE sell earlier than 30 days before SCE expires (but can transfer to the new expires (but can transfer to the new owner if sell)owner if sell)

Some ConcernsSome Concerns WI prices not used in formulas, so WI WI prices not used in formulas, so WI

producers may be exposed to more riskproducers may be exposed to more risk Actual price you sell the animals for can Actual price you sell the animals for can

differ from the Actual Ending Valuediffer from the Actual Ending Value Does not pay indemnities for:Does not pay indemnities for:

Slower than expected gainSlower than expected gain Disease, weather, poor feedDisease, weather, poor feed Does not pay full value for death or theftDoes not pay full value for death or theft

RMA can suspend at any timeRMA can suspend at any time

Questions for UWEXQuestions for UWEX Brenda Boetel, UW-RiverfallsBrenda Boetel, UW-Riverfalls

715-425-0702, brenda.boetel@ces.uwex.edu715-425-0702, brenda.boetel@ces.uwex.edu Bill Halfman, UWEX, Monroe CountyBill Halfman, UWEX, Monroe County

608-269-8722, bill.halfman@ces.uwex.edu608-269-8722, bill.halfman@ces.uwex.edu Paul Mitchell, UW-MadisonPaul Mitchell, UW-Madison

608-265-6514, mitchell@aae.wisc.edu608-265-6514, mitchell@aae.wisc.edu

RMA Certified AgentRMA Certified AgentKelley Braneman, Badgerland Farm Credit ServicesKelley Braneman, Badgerland Farm Credit Services

888-227-3243 or 920-261-2275888-227-3243 or 920-261-2275

Kelley.Breneman@badgerlandfcs.comKelley.Breneman@badgerlandfcs.com