Safeguarding Your Livestock Investment

In the ever-changing landscape of agriculture, farmers are constantly seeking ways to mitigate risk and protect their livelihoods. Livestock Risk Protection is an important risk management tool to safeguard your livestock investment.

What is Livestock Risk Protection (LRP)?

Livestock Risk Protection is an insurance program designed to provide livestock, dairy and swine producers with protection against unexpected declines in market prices. Administered by the USDA’s Risk Management Agency (RMA), LRP offers coverage for cattle and swine, allowing producers to safeguard their investments and mitigate financial losses due to market volatility.

How Does LRP Work?

Livestock Risk Protection allows for producers to customize protection to their operation. Producers choose coverage levels and dates that align with their operation and market expectations. The prices producers can protect are based on the Chicago Mercantile Exchange (CME) futures prices. Producers have the opportunity to enroll in coverage daily when the CME is open, and prices are released. In the event that market prices fall below the coverage price level specified in the policy, producers can receive indemnity payments to compensate for the difference.

LRP Coverage Example

Clancy’s Cows owns 100 head of feeder cattle. To mitigate some market risk, Clancy’s Cows decided to protect 80 head of cattle under the LRP program. The target end weight of the cattle is projected at 750 lbs. and the cattle will be marketed 17 weeks from now. The farm chose the highest coverage level to guarantee themselves the highest price and selected an end date near the marketing date. In this case, the actual market price or end value was lower than the price the operation protected, so the farm is due a payment for the difference. An example of how the prices and payment are calculated is below.

Total head: 80

Target weight = 750 lbs. (7.5 cwt)

Ownership Share: 100%

Coverage Price = $259.57 (selected on LRP policy)

Actual Ending Value = $241.75

80 head X 7.5 cwt = 600 cwt

$259.57 - $241.75 = $17.82/cwt

600 X $17.82/cwt = $10,692

What livestock is covered under LRP?

Livestock covered under LRP includes fed cattle, feeder cattle and swine. There is flexibility within these three different livestock categories. Dairy producers have the opportunity to protect their beef crosses and dairy heifers, too!

5 benefits of LRP

Price Protection: LRP provides producers with a valuable tool to protect against adverse price movements in the market. By locking in a minimum price for their livestock, producers can mitigate the financial impact of price declines.
Flexibility: The program offers flexibility in terms of coverage levels, coverage periods and eligibility criteria, allowing producers to tailor their insurance policies to suit their individual needs and risk management strategies.
Risk Management: LRP is an essential component of a comprehensive risk management strategy for livestock producers. By diversifying risk across different aspects of their operation, producers can enhance their resilience to market fluctuations and other unforeseen challenges.
Federal Subsidies: One of the key advantages of LRP is its affordability, thanks to federal subsidies that help offset the cost of premiums. These subsidies make LRP accessible to producers of all sizes, from small farms to large-scale operations, leveling the playing field and promoting risk management across the industry.
Peace of Mind: With LRP coverage in place, producers can have peace of mind knowing that they are protected against potential losses due to market volatility. This confidence allows them to focus on what they do best – raising high-quality livestock.

Next Steps

Livestock Risk Protection is a valuable risk management tool that offers peace of mind and financial security to livestock producers. By providing protection against market price declines, LRP helps producers safeguard their investments and maintain profitability in an unpredictable market environment.

As agriculture continues to evolve, programs like LRP will play an increasingly important role in supporting the resilience and sustainability of the livestock industry.

For more information on LRP or other livestock programs, please contact your livestock specialist.