By Blake Jackson
With feeder calf and fed cattle prices at elevated levels, input expenses have climbed as well, tightening margins for many operations. At the same time, price swings have become more pronounced over the past decade.
Trade interruptions or even media-driven health concerns can quickly pressure national markets. According to William Halfman, Beef Outreach Specialist with the University of Wisconsin, and Brenda Boetel, Extension Agricultural Marketing Specialist with the University of Wisconsin, today’s beef producers are carrying substantial risk exposure. One tool they encourage producers to consider is Livestock Risk Protection (LRP) insurance to guard against unexpected price declines.
LRP is a USDA-backed insurance program designed to establish a price floor, similar to a put option, while preserving the opportunity to benefit if prices rise. Recent updates have made the program more producer-friendly.
Subsidy rates have increased significantly, premiums are now due at the end of the coverage period instead of upfront, and cattle can be marketed up to 60 days before the coverage end date without voiding protection.
Additional flexibility allows producers to insure cattle under valid purchase agreements, provided certain conditions are met. New coverage categories have also been introduced for dairy-related cattle.
Halfman and Boetel note that LRP differs from futures market tools because it allows producers to insure the exact number of head they own, rather than standard contract sizes.
Premiums are subsidized, lowering out-of-pocket costs. However, LRP does not protect against poor animal performance or death; it strictly covers declines in national price indices during the coverage period.
Coverage is available for both feeder and fed cattle, with options based on weight, breed type, sex, and length of coverage. Indemnities are calculated using national price data, not individual sale prices, making LRP most effective as protection against broad market downturns.
When incorporated into a broader risk management strategy, LRP can serve as a financial safety net. As Halfman and Boetel emphasize, it is not intended as a profit tool, but as protection against unforeseen market drops that can threaten a producer’s bottom line.
For more information, visit https://www.rma.usda.gov/tools-reports/agent-locator.
Photo Credit: istock-123ducu
Categories: Wisconsin, Livestock, Beef Cattle