Livestock Risk Protection

[crop/hail]

Hey Guys, I'm not entirely new to this site as I read articles and topics on here a lot. Let me tell you about myself. I'm an auctioneer and an agricultural insurance agent, I run a handful of cows on my property and my dads, I run stocker cattle on oats/wheat in the fall, I also do some farming and bale a little hay. I live in central Texas, and have a wife and 2 kids.

I was wondering if anyone on these boards has ever participated in crop insurance in general and more specifically Livestock Risk Protection. Before I get kicked off of here for soliciting, Let me just say that I am not trying to sell anything, I was just needing some feedback as to how it has worked for you and if it was beneficial. Any feedback negative or positive would be helpful.

Thanks

 

[Bigfoot]

I wish I had, had it the last quarter of last year.

 

[JMJ Farms]

I had a LRP policy in the last quarter of last year. And it was a very beneficial decision. It returned me $7 for every $1 I spent on the premium. In 13 weeks. Bought it in Sept. Expired Dec 15. Couldn't have hit it any better. With that being said..... Here's the short of it.

It's a gamble. But I guess any type of farming/ranching is also. Just pay close attention to the adjustment factor. This was never mentioned when I bought the policy. It was however provided when the policy arrived in the mail. I was told that whatever the CME futures closed at on Dec 15 (which was the day my policy matured) vs. the price I had locked in would be how the potential indemnity would be calculated. I bought a policy on "steers weight 1" Example. I locked in a price of 2.0032 on steers weighing less than 600 pounds. Futures closed at 1.55 on Dec 15. That's 0.45 per pound insured. Use 50000 pounds. That's $22500. Wrong. The "actual ending value" can be found on CME website. I think it's called the "daily feeder cattle price index". The "actual ending value" can also be calculated by taking the CME futures ending price and multiplying it by the adjustment factor. The adjustment factor was on my policy. Not sure if it's on the LRP website.

Adjustment factor of 110% on "steers weight 1". So here's the calculation. 1.55 x 110% = 1.705. Lock in price of 2.0032 - 1.705 = 0.30 x 50000 pounds = $15000. Still a good investment.


I told this whole story to point out the key factor. Prices basically have to fall 10% before you realize any benefit. If they fall 8% you only lose your premium which you could have saved. If they fall 10% you will probably recoup your investment. If they fall 22% like they did on mine you'll be glad you bought it. I bought a $1200 policy and got a check for right at $9k. But I had a really strong feeling they were headed south and headed fast. I just happened to be right (usually that's not the case). I could have lied and insured more than I actually had a made a lot of easy money. But I like sleeping at home.

So here's the bottom line. As far as risk protection I think it's a good thing. In a stable, sideways, or rising market I don't think it's beneficial, unless it helps you sleep at night. Just keep in mind that the feeder cattle futures price has to drop 10% between the purchase date of the policy and the ending date for the insured to recoup their premium. That's a somewhat substantial drop and doesn't happen often in a short period (at least historically). This may be the new norm. IDK? Also, the USDA is the one figuring these "projected" prices and they are pretty sharp. I'm no expert but I have studied these LRP policies pretty extensively and if I can help I'd be glad to.

Hope this is not too confusing.

 

[TennesseeTuxedo]

Excellent post JMJ.

 

[JMJ Farms]

Thanks Tennessee Tux. I just figured I might could explain something to someone a whole lot easier than it was explained to me. Although I spent a lot of hours researching LRP before I figured it out, I'm glad I spent that time. It was a good decision and I need all those I can get!

 

[Bigfoot]

What would it cost to insure a group of 70 feeders? Ball park. 450 pound range.

 

[JMJ Farms]

What would it cost to insure a group of 70 feeders? Ball park. 450 pound range.

Bigfoot, there are several different criteria and rates vary based on coverage level. Check out this link. There are four different criteria to select and then click "create report". "Weight 1" is under 600lbs for steers. "Weight 2" is over 600lbs. I think this is the same for all classes. But I'm not positive.


Here's the link so you can look as it changes daily.
https://www3.rma.usda.gov/apps/livestock_reports/

 

[Bigfoot]

Thanks. I'll check it out.

 

[calfbuyer]

Thanks for your input. I agree with you completely and im the guy who sells it!!! I actually looked into putting an LRP policy on a set of heifers that I have running on oats now. It wouldnt pay to do it because the market is just floundering around going in a straight line right now and it probably wouldnt be worth the 20 to 30 dollar a head premium that i would have to pay. Where this one pays big time is in a situation where cattle are high and the price drops drastically. If you would have done a policy last spring that matured this past fall, it would have paid off big time.

Thanks again guys

 

[Stocker Steve]

There is a large subsidy on crop insurance premiums. I think 60%.
There is a small subsidy on LRP premiums. I think 15%.
Yes, they work best in a declining market, but the subsidy on crop insurance makes it a no brainer.

How would you approach picking a LRP policy start date with the limit up limit down disconnects in futures ?

 

[Banker729]

JMJ is spot on in his analysis and explanation of the product.

The best way I have figured out to make this work is to buy the highest coverage price (99%) on less head vs buying say a 90% policy on all my head. By buying a 99% policy, you have a better chance of getting paid and can insure the same dollars.

I had a policy I bought around May of 2015 with a Nov 2015 expiration. It paid me an $119 for my 580 pound steers.

 

[Stocker Steve]

I had a policy I bought around May of 2015 with a Nov 2015 expiration. It paid me an $119 for my 580 pound steers.

I looked into a policy in May 2015, but since I did not buy it....

 

[Stocker Steve]

I was just needing some feedback as to how it has worked for you and if it was beneficial. Any feedback negative or positive would be helpful.

Subsidized crop insurance drives up the price of good crop land, since the buyers downside is limited. Established operators with crop history and existing equipment leverage this to bid up the price of additional land. So, crop insurance hurts someone new who is trying to buy into this game.

This does not work well with for lower productivity land in a low commodity price era. Typically this type of land gets retired into CRP if possible. Otherwise, it is available for someone who wants to run cattle and regenerate the soil fertility. :cboy:

I don't think LRP has an effect approaching this. It seems like a necessary product for someone running calves on margin. Your thoughts?

 

[crop/hail]

cant even do a LRP policy today. The market dropped too much. :cry2: :???: