Livestock Risk Protection

Sep 26, 2023 | Uncategorized

I kept hearing about LRP, but frankly didn’t know much more than “it’s like crop insurance for livestock.”

So, in an effort to learn more, I reviewed the USDA’s 48-page Handbook.

Here’s my [inexperienced] summary:

What is it?

Livestock Risk Protection is a risk management tool that provides protection against a decline in market prices for livestock.

How does it work?

It works by allowing producers to purchase insurance coverage based on the expected market price of their livestock.

→ If the actual market price falls below the coverage price, the producer can receive an indemnity payment to help offset the loss.

Eligibility Requirements

Requirements include having an insurable interest in the livestock, meeting certain ownership and management requirements, and complying with other program rules, like:

-NRCS & FSA rules
-Recordkeeping
-Federal Regs
-State Regs
-Reporting
-Deadlines

Premium Calculation

Premiums are based on the expected market price of the livestock, the coverage level selected by the producer, and other factors.

(Example at the end)

Indemnity Calculation

Indemnity payments are based on the difference between the coverage price and the actual market price, as well as other factors.

(Example at the end)

Deadlines

There are various deadlines producers must be aware of. These deadlines vary depending on the type of livestock and the insurance period selected by the producer.

Eligible Livestock

The Handbook provides detailed information on the eligibility of these types of livestock:

-Feeder Cattle
-Fed Cattle
-Swine

Roles & Responsibilities

The handbook outlines the roles and responsibilities of the various parties involved in administering the LRP Plan of Insurance.

These parties include the Federal Crop Insurance Corporation (FCIC), the insurance company, and the producer.

Coverage Levels

Levels range from 70% to 100% of the expected market price, and the premium cost varies accordingly.

Premium Subsidies

There are premium subsidies available to producers who meet certain eligibility requirements.

→ These subsidies can help reduce the cost of LRP coverage.

Policy Provisions

The Handbook includes information on various policy provisions that may or may not affect producers in various situations.

Example Premium Calculation

An operation has 100 head of steer feeder cattle and expects to market the feeder cattle at a target weight of 7.5 cwt each.

The PAF is 100%. The insured share is 100 percent.

The expected ending value is $78.95 dollars per live cwt and the insured selects a coverage price of $75 per live cwt.

For this coverage price the rate is 1.3990%.
The example premium subsidy is 35 percent.

The Premium is calculated by:

(1) 100 head times 7.5 cwt equals 750 cwt
(2) 750 cwt times the coverage price of $75 equals $56,250
(3) $56,250 times the PAF of 1.00 equals an insured value of $56,250
(4) $56,250 times the insured share of 1.00 equals an insured value of $56,250
(5) $56,250 times the rate of .013990 equals $787 total premium
(6) $787 times the producer premium subsidy percentage of .35 equals $275
(7) $787 minus $275 equals the producer premium of $512

Example Indemnity Calculation

An operation with 1,000 head of hogs, a target weight of 1.85 cwt, an insured share of 100 percent, and a coverage price of $52.25 per cwt, the actual ending value is equal to $44.80 per cwt.

Since $44.80 is less than the coverage price of $52.25, an indemnity is due.

Indemnity is calculated by:

(1) 1,000 head times the 1.85 target weight equals 1,850 cwt
(2) Subtracting the actual ending value of $44.80 from the coverage price of $52.25 equals $7.45/cwt
(3) Multiplying 1,850 cwt by $7.45/cwt equals $13,783
(4) Multiplying $13,783 by the insured share of 1.00 equals an indemnity payment of $13,783

You May Also Like