LRP insurance available to producers

Purchasing a livestock risk protection (LRP) insurance policy is a great risk management option, but producers should always consider how a policy will work in conjunction with other risk management strategies to ensure the best possible outcome.

With an assortment of risk management tools available for livestock producers, LRP is a valuable option, no matter how big or small the operation is.

LRP insurance is intended to insure against declining market prices.

Hog and beef producers can choose from various coverage plans and insurance periods corresponding to the market weight hogs or cattle would typically be sold at. 

LRP programs are customizable and fit a variety of producers across the U.S.

History of LRP insurance policy

The U.S. Department of Agriculture (USDA) states LRP insurance policies are a federally subsidized resource for producers and were introduced in 2003 by the USDA Risk Management Agency (RMA). They remained unchanged until 2018.

In 2018, improvements were made to lower costs, increase access and allow producers to utilize LRP insurance efficiently.

In 2020, LRP insurance premiums were moved to the end of the insurance period, making it easier for producers to initiate insurance coverage. This change generated an increase in LRP policies. 

According to the University of Tennessee Institute of Agriculture, the benefits of LRP policy compared to futures and options include no margin calls and no quantity minimums.

Another advantage is lenders generally understand insurance. LRP is viewed more favorably as a price risk management tool than futures and options, thus allowing potentially more favorable borrowing terms and conditions. 

LRP insurance can be purchased throughout the year from an RMA approved livestock insurance agent.

Local insight on LRP

Ron Burkett of Burns Insurance stated LRP policies are gaining popularity and are flexible in the timing of purchase, length of coverage, number of head covered, target weight of livestock at the end of coverage and the coverage price level.

“LRP insurance policies protect against a declining livestock market price by providing a price floor. A loss is accrued if the ending market price is below the price floor the producer set at the beginning of the coverage,” Burkett added. “LRP does not protect against any type of production risk.” 

Burkett explained any size of operation can purchase an LRP policy as coverage is based on per head rather than a set contract size, which allows for different types and weights of cattle or swine to be covered while giving producers a more accurate price risk. 

“After coverage is purchased, the premium is billed at the end of the coverage period,” he continued. “The premium billing date is the first of the month, following the month in which the coverage ended. For example, if the coverage period ends Oct.14, the billing date is Nov. 1.” 

LRP insurance policies were not created to enhance profits for livestock producers, and they do not guarantee a cash price for the cattle. LRP only protects against a regional and/or national cash price index decline. 

“These policies do not protect against mortality, condemnation, physical damage, disease, individual marketing decisions, local price aberrations or any other cause of loss,” Burkett concluded.

As cattle prices remain positive, there still needs to be a guarantee of where prices will be when it comes time to sell livestock. Having an LRP insurance policy as a risk management tool has proven beneficial in navigating volatile markets.

Melissa Anderson is the editor of the Wyoming Livestock Roundup. Send comments on this article to roundup@wylr.net.