Cattle and swine producers, concerned about volatile corn and soybean prices, will be able to sleep better with the help of either Livestock Gross Margin Insurance or Livestock Risk Protection Insurance. They are both provided by USDA, and livestock producers across the Cornbelt are now covered by both insurance plans. “What are the details and how do I sign up?” Glad you asked.

Livestock feeders face risks, not only in feed prices but in the price of feeder calves and feeder pigs. Management of that risk can be accomplished through hedging to ensure profits, but profit margins can also be insured with the help of LGM and LRP insurance programs. Nebraska livestock economists Darrell Mark and Josie Waterbury, in their recent Cornhusker Economics newsletter say that recent changes by USDA have expanded the programs to more producers by enlarging the eligible area and adding swine operations to the programs.

LGM for cattle provides protection against a decline in the cattle feeding finishing margins by simultaneously hedging the corn and feeder cattle input costs and the fed cattle selling price as a bundled option. It is available for calf finishing and yearling finishing

LGM for swine provides protection against a decline in the swine finishing margins by simultaneously hedging the corn and soybean meal input costs and the market hog selling price as a bundled option. It is available for farrow to finish, feeder pig finishing, and segregated early weaned pig finishing operations.

LRP covers the risk of price declines for feeder cattle, fed cattle, and swine. It provides producers an indemnity if a regional or national cash price index falls below an insured coverage price. Similar to a put option, the LRP policy is price insurance only, providing single-peril price risk protection for the future sale of insured livestock.

The University of Nebraska has created an educational website to help producers learn how to use the two forms of crop insurance for livestock. The LRP and LGM study guides address: premiums, beneficial interest, how coverage is purchased, basis risk, hedging outcomes, and enrollment details, including examples that help a prospective user correlate their operation. There are free home study courses, video lectures, and information necessary to understand and use the programs. “The website also contains an in-depth analysis of basis risk associated with LGM and LRP insurance, which differs from traditional basis risk.”

For the Livestock Risk Protection program, USDA made a number of changes beginning in July, in addition to the expansion to 17 additional states. (37 are now in the LRP program.) Both the livestock and the agent must be in the eligible states, but the owner can reside elsewhere. Additionally, USDA removed the prohibition on taking either a hedging or options position that was adverse to the insurance. USDA also extended coverage limits up to 100% of the expected ending value, however reduced the price adjustment factor to 85% for dairy livestock.

Summary:
Cattle and hog producers who are uneasy about volatility in the livestock and feed markets have an increased opportunity to manager their profit margins with the help of Livestock Gross Margin and Livestock Risk Protection insurance programs from USDA. Recent changes in both programs have extended the eligibility to more producers, and with that, the University of Nebraska has provided educational information on-line to learn how to use the risk management programs.