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Livestock Risk Protection: Flexible Insurance for Producers

Learn about Livestock Risk Protection (LRP), a federally reinsured insurance plan that provides flexible coverage for livestock producers. Discover the benefits, availability, and coverage options.

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Livestock Risk Protection: Flexible Insurance for Producers

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  1. Disclaimer This presentation is for informational purposes only and does not supersede any information found in any Livestock Risk Protection contract document or approved procedures

  2. The Agricultural Risk Protection Act of 2000 (ARPA) allowed for development and sale of federally reinsured livestock insurance plans

  3. LRP developed under 508(h) of the Federal Crop Insurance Act and currently owned by; Applied Analytics Group, Inc. 621 W. Barry Suite 302 Chicago IL 60657 LRP@apldag.com

  4. Underwriting Capacity • Livestock funds limited by ARPA • “Real Time” Underwriting via Risk Management Agency website • Daily limit of premium sold • Coverage not available if limit has been or might be exceeded.

  5. LRP Flexibility • Timing of purchase • Coverage available throughout the year • Price to be covered • Multiple coverage prices • Select endorsement period • 13 to 52 weeks available • Number of head insured • From 1 head to endorsement and policy limits

  6. FCIC Board approved implementation of LRP-Feeder Cattle and LRP-Fed Cattle on December 18, 2002 Sales began June 9, 2003

  7. Bovine Spongiform Encephalopathy • LRP Feeder Cattle and Fed Cattle sales suspended December 23, 2003 • LRP sales resumed October 1, 2004 under new contract provisions

  8. Availability of LRP Fed & Feeder Cattle Available in all counties of displayed states.

  9. Coverage Availability • Coverage information: • On RMA web site; • Applicable only for date of sale; and, • Available when published on website until 9 a.m. Central Time following day • Available Saturday mornings until 9 a.m. Central Time

  10. Coverage Availability • Coverage NOT available: • Monday mornings, Sundays, Federal or market holidays; • If web site or premium calculator not operational; • If sales halted by FCIC; • Any required data for establishing coverage prices or rates not available; Or, • Futures not trading at end of day • Any other reason in policy

  11. Who Should Enroll(Submit Application) • All producers with eligible livestock located in LRP states • Enrollment gives the right but not obligation to purchase coverage • No cost to enroll

  12. LRP Application(Enrollment) • Establish eligibility • Right but not the obligation • Purchase specific commodity endorsements (SCE) • Application by entity & State • Individual • Partnership; Etc. • Physical location of livestock at time application submitted.

  13. Specific Coverage Endorsement(SCE) • Initiates coverage on named livestock • Attaches to LRP policy • Multiple endorsements allowed subject to policy limitations • 13, 17, 21, 26, 30, 34, 39, 43, 47, or 52 weeks

  14. Endorsement Length • Selected when endorsement bought • All lengths not available every day • Choose available term ending closest to marketing

  15. Target Weight • Anticipated weight at end of endorsement period • Producer estimate at purchase • Used in premium and claim calculations

  16. Insurable Feeder Cattle • Steers • Less than 6.0 cwt (Steers & Bulls) • 6.0 cwt to 9.0 cwt (Steers only) • Heifers • Less than 6.0 cwt • 6.0 cwt to 9.0 cwt • Predominately Brahman & Dairy breeds • Less than 6.0 cwt (Steers, heifers and bulls) • 6.0 cwt to 9.0 cwt (Steers & heifers)

  17. Insurable Fed Cattle • Grade Select or higher • Yield Grade 1 to 3 • Market for slaughter at 10 to 14 cwt at end of the endorsement period

  18. Covered Peril • Price Decline Only! • Price decrease during term of endorsement • Actual Ending Value • Policy end date • Less than coverage price • Selected when endorsement bought

  19. Perils Not Covered • Death, disease • Quarantine, seizure, forced destruction • Marketing decisions • Local price not guaranteed • Any cause not in policy

  20. Level of policy protection Multiple prices available daily Quoted in $ per cwt Published daily on RMA website Selected when endorsement purchased Coverage Price

  21. Actual Ending ValueFeeder Cattle • Calculated by Chicago Mercantile Exchange (CME) • Reported as CME Feeder Cattle Reported Index • Multiplied by price factor for type & weight of livestock • On end date of endorsement or day prior

  22. LRP Feeder CattlePrice Adjustment Factors Applied to prices prior to publishing.

  23. Actual Ending ValueFed Cattle • AMS 5 Area Weighted Weekly Price • www.ams.usda.gov/mnreports/lm_ct150.txt • Price Series • Live Basis Sales, Steers, 35-65% Choice category • Report for week containing policy end date or prior week

  24. Annual Policy Limits(July 1 to June 30) • Feeder Cattle • Not more than 1,000 head per endorsement • Not more than 2,000 head per crop year • Fed Cattle • Not more than 2,000 head per endorsement • Not more than 4,000 head per crop year

  25. Annual Policy Limits • Individual’s interest in multiple entities • % interest times # head • Not exceed per crop year • 2,000 head feeder cattle • 4,000 head fed cattle

  26. Offsetting Transactions • Any transaction making subsidy available for immediate use • Ex.; Writing a CME put option • Ex.; Buying (long position) a CME futures contract • Prohibited!!! • Denial of indemnity • Premium owed

  27. Policy Assignment • LRP indemnity may be assigned • Lender • Other creditor • Must be approved by company • Establishes collateral value

  28. 72 Hour Notice • Government authority order • Seizure • Quarantine • Forced destruction • Not deliverable due to • Death • Disease • Notify agent within 72 hours of learning of the event

  29. Why Give 72 Hour Notice • If notice given to agent • Affected livestock included if indemnity payable on endorsement • If notice not given • Affected livestock excluded from indemnity calculation • No premium refund

  30. Premium • Premium quotes on RMA premium calculator. • Premium must be paid at LRP purchase • Coverage prices, levels, and rates: • Available on RMA website; • Change daily; And, • Referred to at time of sale for each endorsement.

  31. # Head * target weight; 100 hd. * 7.50 cwt = 750 cwt. #1 * Coverage Price; 750 cwt. * $75 = $56,250 #2 * insured share; $56,250 * 100% = $56,250 #3 * premium rate; $56,250 * 0.013990 = $787 #4 * 0.13 Premium Subsidy; $787 * 0.13 = $102 #4 minus #5 $787 - $102 = $685 Producer Premium Premium Example

  32. LRP Indemnity • Indemnity payable when • Actual ending value • On policy end date • Less than coverage price • When endorsement purchased

  33. Indemnity Example • # Head * target weight; 100 hd. * 7.50 cwt = 750 cwt. • Subtract Actual Ending Value from Coverage Price; $75.00 – $70.00 = $5.00 • #1 * #2; And 750 cwt * $5.00 = $3,750 • #3 * insured share. $3,750 * 1.000 = $3,750 indemnity

  34. LRP Websites General LRP Information (including rates & prices) • http://www.rma.usda.gov/policies/2005LRP.html Premium Calculator • http://www3.rma.usda.gov/apps/premcalc/ Livestock Agent Locator • http://www3.rma.usda.gov/apps/agentslpi/ CME Feeder Cattle Reported Index • http://www.cme.com/trading/dta/hist/cash_settled_commodity_prices.html?type=Feeder%20Cattle USDA-AMS Fed Cattle Prices • http://www.ams.usda.gov/mnreports/lm_ct150.txt

  35. LRP vs Futures and Options

  36. How to Participate in LRP • Producers apply for an LRP policy with their insurance agent. • The application is submitted to approved insurance provider (AIP). • AIP assigns a policy number. • Producer does not yet have LRP coverage. • Right but not obligation to purchase Specific Coverage Endorsement(s).

  37. How to Participate in LRP • Purchase Specific Coverage Endorsement. • Estimate target weight per head. • Select coverage price & endorsement length. • Pay premium. • Agent receives RMA approval number. • Endorsement in effect upon receipt of RMA approval number.

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