Livestock Risk Protection (LRP) Is Changing the Game
Maximizing Profits for Ranchers
By Steve Koenig, Crop Insurance Agent
The cattle market is always a trick to predict.
Should I sell the futures market or buy Put options? How can I protect a profit and let the market run higher? For years you would use Puts. The Puts always seemed too expensive. In 2003, the Risk Management Agency (RMA) decided to offer livestock insurance. The Livestock Risk Protection (LRP) program worked like Puts with a 13% subsidy. You can get out of a Put on any trading day, while LRP had defined settlement dates. When compared LRP and Puts were very similar.
From 2018 to 2020, RMA made some changes to LRP. The subsidy levels were raised to 35% to 55% depending on the coverage selected. The premium was due at the end of the policy period instead of when purchased. Livestock producers took advantage of the better subsidies. Interest in the policy has been slowly increasing. LRP can put a floor under your ownership. It is personalized to the cattle you are selling. Feeder cattle are covered under 600 lbs. or 600 to 1,000 lbs., by gender and cattle type. Fed cattle can be covered 1,000 lbs. to 1,400 lbs.
The cattle market has collapsed in the last four-plus weeks. Feeder cattle are down over $25 and fed cattle are over $11 per hundred. These markets will recover once they find a corrective bottom.
LRP gives you an opportunity to protect the value of your livestock.
If you could lock in $1,798 for a 725 lbs. steer for $68 would you consider a flour of $1,730 as protection for December delivery? That was available on April 11. On March 21, the same 725 lbs. steer was available for $1,922 for $74 premium net $1,848.
LRP allows you to cover any number of head. You can insure 1 head. Watching the market and covering a percentage of your cattle at a time gives you peace of mind.
Talk to your Momentum agent for all of the details.