Livestock Risk Protection
Livestock Risk Protection 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 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.
Benefits of LRP
- Guaranteed price
- No bid/ask spread.
- Limited 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).