October 16, 2021

Pros and cons of Livestock Risk Protection plans

Risk management tools to consider

DANVILLE, Ind. — Livestock Risk Protection plans are one tool farmers can use to reduce price risk.

Derrell Peel, professor of agricultural economics at Oklahoma State University, discussed LRP at the Stockmanship and Stewardship event.

“Livestock Risk Protection is a subsidized price risk management tool offered by the U.S. Department of Agriculture’s Risk Management Agency,” Peel said. “It’s designed to offer protection against downside price risk.”

Essentially, it establishes a floor price based on national feeder cattle prices.

Peel shared pros and cons of LRP at the event.

LRP Advantages

• Smaller numbers can be insured.

• Premium subsidy increased.

• No brokerage or margin.

• Available in months when there are no future/options.

• Coverage prices available daily.

LRP Disadvantages

• Not as flexible as future or options.

• Still subject to basis risk.

• You must own the cattle.

• 12,000 head max per producer.

Steps To Getting Coverage

There are six steps to obtaining LRP coverage:

1. Find an LRP authorized agent. Visit www.rma.usda.gov/en/Information-Tools/Agent-Locator-Page to learn more.

2. Fill out an application.

3. Application is accepted.

4. Purchase a Specific Coverage Endorsement in order to get coverage. A new SCE must be completed each time a producer wishes to purchase coverage.

5. At the end of the insurance period, if the actual ending value is less than the coverage price selected, the producer will be owed an indemnity. If the actual ending value is greater than the coverage level, no indemnity will be paid.

6. If the producer is owed an indemnity, he must submit a claim form within 60 days of the policy’s end date in order to collect the indemnity. Payments are made within 60 days of the claim.

“In summary, LRP protects against national price declines,” Peel said. “It is still subject to basis risk. It’s one of the few risk management tools available for small-scale producers.”

Erica Quinlan

Erica Quinlan

Field Editor