Volatile prices over the past two years have left many livestock producers wondering how to best manage the downside price risk they face. As of October 1, 2004, USDA has introduced a new price risk management tool available to hog producers, feedlot operators, back grounders, and cow-calf operators: a livestock revenue insurance policy called Livestock Risk Protection (LRP). Originally piloted in Iowa over the past couple of years, the program operates on a simple premise: you insure against downward movement in hog or cattle prices that might occur after you have committed to growing them. For those familiar with futures and options lingo, this is a lot like a put option. While the general concept behind LRP is similar to put options, operational details are different. The purpose of this article is to outline the general concepts of LRP, highlight differences between LRP and options, and provide an example that compares LRP to put options. (Livestock Risk Protection Insurance Policies: Overview and Comparison to Using Put Options, page 1.)
On October 1, 2004, Wyoming livestock producers became eligible to participate in RMA's LRP program. RMA Fact Sheets are available for Fed Cattle, Feeder Cattle, and Swine. Like all risk management options, the Livestock Risk Protection Program (LRP) should be considered in conjunction with other risk management strategies that may be employed in a given enterprise.
Two articles are presented related to RMA's Livestock Risk Protection Program:
- From Ohio State University, we provide an article by Brian Roe entitled Livestock Risk Protection Insurance Policies: Overview and Comparison to Using Put Options.
- From the South Dakota State University Cooperative Extension Service, we provide an LRP Fact Sheet prepared by Matthew Dierson, entitled Livestock Risk Protection: Feeder Cattle, Fed Cattle, and Swine.
These articles were selected for their relevance, ease of understanding, and completeness; however, they do not provide an exhaustive discussion of the structure and availability of Federal LRP programs for Wyoming producers. Readers desiring additional information about Federal LRP programs are encouraged to explore the following reference links.
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LRP Program Materials
2005 LRP Program Web Page: http://www.rma.usda.gov/policies/2005lrp.html;
2005 Livestock Risk Protection Basic Policy: http://www.rma.usda.gov/FTP/Policies/2005/lrp/pdf/05_LRP_Basic_Policy.pdf;
LRP Training and Tools
AgManager.Info - Insurance and Risk: http://www.agmanager.info/livestock/insurance/default.asp;
USDA Agricultural Marketing Service (AMS) Weekly Livestock Reports: http://www.ams.usda.gov/lsmnpubs/Live.htm.