– Dr. Andrew Griffith, Assistant Professor, Livestock Marketing Specialist, Department of Agricultural and Resource Economics, University of Tennessee
LRP is administered by the RMA with a federally-subsidized premium.
There were multiple phone calls recently concerning price risk management of feeder cattle and fed cattle. The majority of the questions were in relation to using Livestock Risk Protection insurance (LRP) to hedge cattle for sales from July through November.
Every producer was pleased with where the futures market price is for their respective month, because that translates into the ability to set a higher floor price using LRP. The main issue though was the high cost of purchasing LRP on a dollar per head basis. One thing is for sure, the higher something is in value, the more expensive insurance will be in terms of dollars. However, on a percentage basis of how much it cost relative to the value being protected, the cost is pretty much the same. Additionally, the farther out one is trying to protect a price, the more expensive insurance will be on a dollar per head basis.
Producers should consider the cost of the insurance along with what would be an acceptable loss in price before insurance starts to protect against further price declines.
Please send questions and comments to agriff14@utk.edu.