Cattle producers can once again insure themselves from declining market prices with Livestock Risk Protection (LRP) and Livestock Gross Margin (LGM) Insurance Policies. USDA's Risk Management Agency (RMA) announced that sales of the policies will resume October 1.
Sales for LRP Feeder Cattle and Fed Cattle were suspended on December 23, 2003 when bovine spongiform encephalopathy (BSE) was detected in the state of Washington. LRP is designed to insure against declining market prices. The policy is available for swine, feeder cattle, and fed cattle in selected states. Producers may select from a variety of coverage levels and periods of insurance.
Changes were submitted by the product developer to address abnormal occurrences, such as BSE. On July 29, 2004, the Federal Crop Insurance Corporation (FCIC) Board of Directors approved the resumption of sales and expansion of the LRP program for fed and feeder cattle and swine pending final policy revisions and determination of a sales date by the Risk Management Agency (RMA).
"I commend the Board for its decision to resume these programs after carefully reviewing the market conditions and the program provisions," says RMA Administrator and FCIC Manager Ross J. Davidson, Jr. "This action supports the Administration's commitment to providing more effective risk management tools to assist farmers and ranchers."
Several modifications were made to LRP that led to the approval for resumption of sales. The LRP sales period was changed to the time starting after validation of prices and rates at the close of a business day and ending on the following day at 9:00 AM Central Time. Procedures were implemented that provided for long-term suspension and resumption of sales in cases of catastrophic events or highly volatile futures market prices. Also included was a new daily limit of premium by class of livestock. Provisions were added to suspend sales for any endorsement period that involves rating based on a futures contract that is up or down the limit allowed by the Chicago Mercantile Exchange (CME).
The Board also voted to expand the LRP program to include six new states, and to allow the availability of all three LRP products in the 13 existing pilot states. The three products are LRP Feeder Cattle, LRP Fed Cattle and LRP Swine. The new states are Michigan, Missouri, North Dakota, Ohio, West Virginia and Wisconsin.
The Board approved all three LRP products for sales in Colorado, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, Nevada, North Dakota, Oklahoma, Ohio, South Dakota, Texas, Utah, West Virginia, Wisconsin, and Wyoming.
On April 6, 2004, the FCIC Board withdrew reinsurance for the Livestock Gross Margin insurance plan pending revisions because of concerns regarding excess risks due to timing of sales. The LGM pilot program provides coverage for swine in Iowa and pays an indemnity if the actual gross margin (hog price minus feed costs) for market hogs sold during the coverage period is less than the gross margin guarantee for the coverage period. The LGM Insurance Policy uses futures prices based on the CME and the Chicago Board of Trade to determine the expected and actual values. Once sales resume October 1, the LGM program will again be available in all Iowa counties.
Information on LRP and LGM is also available on the RMA Web site.