What you need to know about LRP

May 12, 2023 | Education | 0 comments


USDA’s Livestock Risk Protection Insurance for Feeder Cattle: Protecting Livestock Producers
Written by: Brandon Willis

Unpredictable market conditions and price fluctuations can pose significant risks to livestock producers. To help mitigate these risks, the United States Department of Agriculture (USDA) offers the Livestock Risk Protection (LRP) insurance program for feeder cattle. Let’s explore what this program is, how it works, and what it covers.

What is Livestock Risk Protection (LRP) Insurance for Feeder Cattle?

Livestock Risk Protection (LRP) insurance is a federal crop insurance program administered by the USDA. LRP insurance is designed to protect livestock producers against a decline in feeder cattle prices. By setting a floor price and purchasing coverage, farmers can know that even if prices drop, they have some financial protection.

How does Livestock Risk Protection (LRP) Insurance for Feeder Cattle work?

Below are key aspects of how LRP insurance for feeder cattle works:
1. Coverage Length: Livestock producers interested in participating in LRP insurance for feeder cattle can select coverage lengths that best suit their needs. LRP offers coverages typically ranging from 13 to 52 weeks. Producers choose a policy that coincides with when they plan to market their livestock so LRP payments align closely with the market
price they receive.
2. Coverage Price: The coverage price is a key component of LRP insurance and something a producer chooses when they sign up for LRP coverage. The coverage price is based on expected market prices for feeder cattle. It is the price below which the actual market price of feeder cattle must fall for an insurance indemnity (payment) to be triggered. It acts as a floor price that provides a level of protection against price declines.
3. Premium Payment: Producers are required to pay a premium to participate in LRP. The premium depends on factors such as the coverage level, coverage price, and the number of head of cattle being insured. The premium is not due until the month after the LRP contract ends.
4. Indemnity Payment: If the actual market price of feeder cattle, as determined by the Feeder Cattle Index, falls below the coverage price at the conclusion of the insurance period, an indemnity payment is triggered. The indemnity payment is designed to compensate producers for the difference between the coverage price and the actual market price, helping to offset financial losses resulting from the price decline.

What does Livestock Risk Protection (LRP) Insurance for Feeder Cattle cover?

LRP insurance for feeder cattle covers the decline in feeder cattle prices. Producers can protect themselves against unexpected declines in feeder cattle prices by purchasing insurance coverage. LRP insurance provides financial stability and support to livestock producers, enabling them to manage risks and ensure the continuity of their operations. LRP gives farmers the flexibility to sell their livestock when market conditions are favorable while still having the security of insurance if prices decrease. It helps protect them from financial losses if the prices of their livestock go down unexpectedly.