Revenue
Insurance
for Livestock
Producers
Two insurance products
are now available

Livestock Risk Protection (LRP)



For hogs, fed cattle and feeder cattle
In CO, IL, IN, IA, KS, MI, MN, MO, NE, NV,
ND, OK, OH, SD, TX, UT, WV, WI, WY
Livestock Gross Margin (LGM)

For hogs, only

Available in Iowa, only
LGM and LRP



Regulated and re-insured by the
Federal Crop Insurance Corporation
LRP has 13% premium subsidy
Both can be withdrawn in case of
extraordinary market conditions
Livestock Gross Margin
Guarantees a minimum return over
feed costs (gross margin)
 Gross margin is based on:

Price of lean hog futures contracts
 Price of corn on the CBOT futures
 Price of soybean meal on the CBOT


Fits producer who buys feed best
Livestock Gross Margin
Classify hogs as feeder pig
finishing, SEW finishing, or farrow
to finish.
 Project number to be marketed up
to 6 months in advance.
 Check guarantees available on
www.rma.usda.gov/tools/

Livestock Gross Margin
Can guarantee from 80 to 100% of
the projected gross margin.
 Each marketing month is a
separate guarantee.
 If the actual gross margin is less
than the guarantee, the producer
receives a payment.

Livestock Gross Margin
LGM is sold only on the last
business day of each month.
 Sold from close of markets until
9:00 am the next working day.
 Can be withdrawn in case of
extraordinary market circumstances

Ja
n
N
ov
D
ec
ct
$20
O
$40
Au
g
Se
pt
Fe
b03
M
ar
-0
Ap 3
r03
M
ay
-0
3
Ju
n03
Ju
l-0
Au 3
g0
Se 3
p03
O
ct
-0
3
N
ov
-0
3
D
ec
-0
3
Ja
n0
Fe 4
b04
M
ar
-0
Ap 4
r04
M
ay
-0
4
Ju
n04
Ju
l-0
4
LGM Results for
Farrow to Finish
$120
$100
$80
$60
Expected gross margin
Actual gross margin
$0
Livestock Risk Protection (LRP)
Based on the CME lean hog futures
price, CME feeder cattle index, or
5-area slaughter cattle price.
 70% to 95% guarantees available.
 Coverage is available for up to 26
weeks out for hogs and 52 for
cattle.

Livestock Risk Protection

Cattle price is adjusted for:
type: conventional, dairy, brahman
 Sex: steers or heifers
 projected selling weight (feeder cattle)


Quantity insured =
no. of head
x projected selling wt.
x % ownership
Livestock Risk Protection
Guarantees available are posted at:
www.rma.usda.gov/tools/
 Posted after the CME closes each
day until 9:00 am central time the
next working day.
 Assures that guarantees reflect the
most recent market movements.

LRP Guarantee Example








State:
IOWA
Commodity:
SWINE
Expected date of sale 17 weeks out
Expected ending value: $76.80 per cwt
Coverage price:
$69.88 per cwt
Coverage level:
91 %
Cost per cwt:
$2.443
End date:
07/18/2005
Livestock Risk Protection
If average of cash index price on
last 2 days of coverage is below the
guarantee, indemnity is paid.
Coverage price: $69.88
Ending price: $65.00
Payment:
$4.88 x head x cwt.

Coverage Limits for LRP
Per endorsement
Per year

Swine:
10,000 hd. 32,000 hd.

Fdr cattle: 1,000 hd.

Fed cattle: 2,000 hd. 4,000 hd.
2,000 hd.
Some Restrictions
Cannot have both LRP and LGM
coverage on the same livestock.
 Cannot have an offsetting position
in the options market.
 There is a maximum of total
coverage allowed by FCIC.

Who can benefit from LGM/LRP?




Producers who depend on the daily
cash market or a formula related to it.
Producers with low cash reserves.
Smaller producers who do not have the
volume to use futures contracts or put
options.
Producers who prefer insurance to the
futures market. No margin account.
Role of Futures Prices
Determines guarantee levels that
are available, and premiums
 Futures markets already reflect price
forecasts
 Insurance protects against prices at
sale time being lower than expected
by some % (deductible)

Some Risks Remain
LRP, LGM do not insure against
production risks
 Futures prices and cash index
prices may differ from local cash
prices
 Selling numbers, weights and dates
may differ from the guarantees

Educational Efforts in Iowa
Extension Bulletin
 Mass media
 Producer meetings

Mostly in 2002-2003
 Iowa Farm Bureau took leadership


Spreadsheet decision aid
For more information visit:
www.rma.usda.gov
www.extension.iastate.edu/agdm
Decision file B1-50