Livestock Insurance
Livestock Risk Protection (LRP)
*This information was taken directly from Rain & Hail's website
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. Coverage prices range from 70-100% of daily livestock prices for swine, fed cattle, and feeder cattle; and 80-95% in 5% increments for lamb. LRP is priced and available for sale continuously throughout the year.
Determining Coverage
Determine the number of livestock to be marketed and the target weight. Multiply the number of head times the target weight, times the coverage price, times the insured share. Livestock can be insured for various different weekly increments (see chart below for details).
Loss payments
- Multiply the number of head by the cwt target weight
- 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
Benefits Of LRP
- Guaranteed Price
- No Bid / Ask spread
- Limited Basis Risk Coverage
- 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 their risk management plan
- Wider range of Target Weights than CME
- LRP is an insurance policy
- May be viewed more favorably by lenders than hedging or speculating (derivative products)
How It Works
Swine
Assumptions: Producer expects to market 1000 head of 2.70 cwt hogs and selects a coverage price of $47.00
| Coverage | 1,000 hogs | x | 2.00 cwt* | x | $47.00 | = | $94,000 | |
| Actual Ending Value | 1,000 hogs | x | 2.00 cwt | x | $46.00 | = | $92,000 | |
| Loss Payment | Assume 100% Ownership | $2,000 | ||||||
*Live weight is converted to lean weight using a factor of 0.74 (2.70 x 0.74 = 2.00)
Cattle
Assumptions: Producer expects to market 1000 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 | ||||||
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 | ||||||
Eligibility
| 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 1.4 to 2.60 lean cwt target weight (189-351 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 16 cwt (live weight). | Steers (< 6.0 cwt for steers and bulls, 6.0-10.0 cwt for steers only) Heifers (< 6.0 cwt and 6.0-10.0 cwt) Dairy Cattle(< 6.0 for heifers, steers and bulls, and 6.0-10.0 cwt for heifers and steers) Brahman Breeds (< 6.0 for heifers, steers and bulls and 6.0-10.0 cwt for heifers and steers) |
Lamb 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, 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, WV, WI, and WY** |
| Maximum Head Insurable | 70,000 per Specific Coverage Endorsement 750,000 per Crop Year | 12,000 per Specific Coverage Endorsement 25,000 per Crop Year |
12,000 per Specific Coverage Endorsement 25,000 per Crop Year |
7,000 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, 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, “80% 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”. |
NOTE: The Livestock Price Reinsurance Agreement allows for Private Reinsured Companies to have limited yearly capacity available on a first come, first served basis. The products and product topic summarized in this outline are not all-encompassing and do not substitute for the policy provisions. See the policy provisions and/or contact an agent today for a complete description of available coverages and their terms and conditions.