PUT's and LRP's

[mncowboy]

With current feeder futures nearing record highs, how many are purchasing LRP's or PUT's? When priced out an LRP, it seemed to follow or replicate the equivalent PUT price and protection when comparing 50,000 lbs. Havent purchased anything yet but I'm leaning towards a PUT option.

 

[Dave]

I like the flexibility in LRP. You can insure any number of animals you want. And steers and heifers are insured differently which is reality at sale time. I am doing nothing this year but I am pretty sure I will be doing LRP next year.

 

[mncowboy]

Went with a PUT in June. Its worth/value is currently a little over 4X the purchase price. Hindsight being what is it, I should have waited until late summer to mid September to purchase one. Im happy enough with the floor its created but obviously I'd take the higher prices we had in August /Sept.
One advantage with a PUT is you can liquidate it when you want. If you purchase a Jan PUT in June but the market collapses in October, you can sell it then. With and LRP, you do not have that option or at least thats my understanding.

 

[bird dog]

LRP is not designed to be an investment/speculation product so it is not really equivalent to a buying a put. LRP is a government subsidized protection product for people that actually own cattle. The LRP is usually advantageous because of this government subsidy.

 

[mncowboy]

When priced or compared the two, the price and protection was the exact same so I went with the PUT. That was with the assumption you have exactly 50% heifers and 50% steers. Going with the PUT leaves me the ability to sell my calves and the put early if i choose or delay sale of both. A neighbor sold his calves earlier than originally intended, the market experienced a dip the same week. If the market rebounds by the maturity date of the LRP, it fails to fill the market dip experienced during the sale of his calves.