livestock insurance: overview livestock risk protection (feeder cattle, feed cattle, same) livestock...

Livestock Insurance: Overview

• Livestock Risk Protection (feeder cattle, feed cattle, same)

• Livestock Risk Protection (LRP) for swine

• The insurable types and weights of feeder cattle under livestock insurance

• Insurance against price changes

• Indemnity calculations

Livestock Insurance: LRP for Feeder Cattle Overview

• Livestock covered by LRP in Wyoming includes:– Feeder Cattle

– Fed Cattle

– Swine

• History of LRP offerings:– Feeder cattle coverage was first offered

on 6-9-03

– Feeder cattle endorsement suspended by RMA on 12-24-03 after BSE case of previous day

– Feeder cattle endorsement resumed on 9-30-04

Livestock Insurance: LRP for Feeder Cattle Geographic Coverage

• The program has expanded by geographic coverage, type and weights of feeder cattle

• Now available in all counties of Wyoming and in all counties of 19 other states

• LRP for feeder cattle offerings and limitations

• Producers remain subject to basis price risk

Livestock Insurance: LRP for Feeder Cattle Basics of LRP

• Product Offered: Protection for producer against decline in cattle prices below the established coverage price

• Insurance Period: Offered for 13, 17, 21, 26, 30, 34, 39, 43, 47 or 52-week periods– The producer will choose a time

closest to the time cattle will be marketed or time when cattle will reach the desired weight

Livestock Insurance: LRP for Feeder Cattle Basics of LRP (cont.)

• Application: An application is required to purchase insurance coverage

• Specific Coverage Endorsement: A producer must file a Specific Coverage Endorsement for each group of feeder cattle to be insured. Several endorsements may be filed under one application as long as beneficial interests are the same

Livestock Insurance: LRP for Feeder Cattle Types and Weights of Feeder Cattle Insurable

• Steer feeder cattle < 6.0 cwt for steers and bulls and steers only from 6.0 to 9.0 cwt

• Heifer feeder cattle < 6.0 cwt and heifer feeder cattle from 6.0 to 9.0 cwt

• Predominantly Brahman heifers, steers, and bulls < 6.0 cwt and predominantly Brahman heifers and steers from 6.0 cwt to 9.0 cwt

• Predominately dairy heifers, steers and bulls < 6.0 cwt and predominately dairy heifers and steers 6.0 to 9.0 cwt

• “Crop” year: [June 1 to June 30]– Annual Policy Limits: The maximum number of head of feeder cattle

that may be covered during a crop year is 2,000 head

• Endorsement Limits:– A limit of 1,000 head of feeder cattle may be insured under any one

Specific Coverage Endorsement

Livestock Insurance: LRP for Feeder Cattle Types and Weights of Feeder Cattle Insurable (cont.)

Livestock Insurance: LRP for Feeder CattleCoverage Prices and Levels

• Coverage Prices

• Coverage Levels

• Price Adjustment Factors

• Use of Price Adjustment Factors

• Off-setting Transaction

Livestock Insurance: LRP for Feeder CattleActual and Expected End Value of Feeder Cattle

• Expected End Value– This is the expected prices at the end of an insurance period for

each specific type and weight of feeder cattle announced daily on the RMA website

• Actual End Value– This is the value of the cash settled CME feeder cattle index on the

end date of the insurance period, adjusted by RMA for feeder cattle type and weight

• Subsidy Level– RMA provides a 13% subsidy on LRP feeder cattle

Livestock Insurance: LRP for Feeder CattleExample

Livestock Insurance: LRP for Feeder CattleIndemnity Calculation: Example 1

• Suppose a producer actually sells 1,000 800-pound steers on April 26th for $85.00/cwt

• The CME-reported actual ending value is $85.00/cwt

• Would the producer receive an indemnity?

• Let’s look at the calculations


• Suppose a producer actually sells 1,000 800-pound steers on April 26 for $82.00/cwt

• The CME-reported actual ending value is $85.00/cwt

• Will the producer receive an indemnity?



• Suppose the producer actually sells 980 750-pound steer calves on April 26– 2% death loss

• Reported within 72 hours

– Lower sales weight– The producer sells the calves for

$85.00/cwt

• The CME-report actual ending value is $85.00/cwt

• Will the producer receive an indemnity?


Livestock Insurance: LRP for Feeder Cattle

Livestock Insurance: LRP for Feeder CattleSummary

• Livestock Risk Protection for feeder cattle

• The insurable types and weights of feeder cattle under livestock insurance

• Insurance against price changes

• Indemnities for transactions

• The difference between LRP insurance coverage and an options coverage

Livestock Insurance: LRP for Fed CattleOverview

• History

• Geographic Coverage

• LRP-Fed Cattle Attributes

• Application

• Offsetting Transaction

Livestock Insurance: LRP for Fed CattleBasics

• Target Weights

• Endorsement Length

• Expected Ending Value

• Coverage Prices

• Premium Rate

• Actual Ending Value

• Current and Archived Information

Livestock Insurance: LRP for Fed CattleExample

Livestock Insurance: LRP for Fed CattlePremium Calculations


• When will a producer be indemnified for a decline in national fed cattle prices?

• Note that the price at which the producer sells his fed cattle does not enter this calculation

• How is the indemnity calculated?

Indemnity = [Number of Head Insured x Target Weight, in hundredweight x (Coverage Price - Actual Ending Value)] x Insured Share


• Larry actually marketed his 1,000 head of fed cattle on January 2

• The actual ending value for the 13 week endorsement period he selected, posted on January 2, indicated an actual ending value of $93.890 for the fed cattle in which he 100 percent ownership share

• Will Larry receive an indemnity for his fed cattle?


Livestock Insurance: LRP for Fed CattleSummary

• Fed cattle producers may use LRP-Fed Cattle to protect against a decline in the national-level prices of fed cattle

• This product does not address other risks such as animal sickness, death loss, increases in feed costs, and price basis risk

Livestock Insurance: LRP for SwineOverview

• History

• Geographic Coverage

• LRP-Swine Attributes

• Application

• Offsetting Transaction

Livestock Insurance: LRP for SwineBasics

• Target Weights

• Endorsement Length

• Expected Ending Value

• Coverage Prices

• Premium Rate

• Actual Ending Value

• Current and Archived Information

Livestock Insurance: LRP for SwineExample

Livestock Insurance: LRP for SwinePremium Calculations


• A producer will be paid an indemnity when the actual ending value of the market hogs (based on national cash prices) is less than the coverage price selected by the producer

• Note that the price at which the producer sells his market hogs does not enter this calculation

Indemnity = [Number of Head Insured x Target Weight, in lean weight x

(Coverage Price - Actual Ending Value)] x Insured Share


• George actually marketed his 5,000 head of market hogs on January 2

• The actual ending value for the 13 week endorsement period he selected, posted on January 5, indicated an actual ending value of $58.480 per hundredweight for the market hogs in which he 100 percent ownership share

• Will George receive an indemnity for his market hogs?


Livestock Insurance: LRP for SwineSummary

• Swine producers may use LRP-Swine to protect against a decline in the national price of slaughter hogs

• This product does not address other risks such as animal sickness, death loss, increases in feed costs and price basis risk

livestock insurance: overview livestock risk protection (feeder cattle, feed cattle, same) livestock...

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