The Fundamentals of Livestock Risk Protection Insurance

As a livestock farmer or rancher, you understand the multitude of risks that can jeopardize your profitability, many of which are beyond your control.

Cattle inventories nationwide took a major hit over the past 12 months with the lowest beef cow numbers since 1962 and the lowest total cattle herd in eight years. The result will be a tight cattle inventory for the next 18 to 24 months and expected higher prices. As the year goes on, it’s possible that the demand for cattle will remain strong, but market volatility is still present.

While there is a positive outlook now, higher prices are not guaranteed when it comes time to sell. With interest rates, feed prices, and other inputs rising, there is simply more risk on the input side of the equation in the coming months. Just one year of market decline could end up costing you more than many years of risk management premiums.

To help mitigate the risk, many producers turn to Livestock Risk Protection (LRP) insurance. LRP insurance is a federally subsidized insurance program that provides coverage for livestock producers against declines in market prices. LRP can help protect profits by reducing downside price risk or locking in a price floor on market expectations.

In the past few years, LRP had several enhancements and improvements put in place which resulted in lower costs, increased access, and ease of use for producers. Also, in the past two years when prices dropped from historical highs, LRP insurance provided a nice floor for those who purchased it. The recent changes have made a dramatic increase in LRP usage across the country, particularly, in Nebraska.

In 2020, the due date for premiums moved from the beginning of the insurance period to the end of it, making it easier for producers to cash flow the insurance coverage. Subsidies also increased from a flat rate of 13 percent to a minimum of 35 percent at the highest coverage prices. If a producer qualifies as a beginning farmer or rancher, they receive an additional 10 percent subsidy on their premium.

We cannot always predict the future, but we can make sure you are protected. Crop 360 from First State Insurance offers a comprehensive approach to service and a unique suite of products and expertise to meet your ag insurance needs including Livestock Risk Management. If you have any questions or if you’re ready to get a quote on LRP for your operation, contact Matt Hoxmeier at First State Insurance.