Economic Tidbits

Want Better Zzzzzs? Think LRP

Producers Rod Christen and Robert Wareham noted fellow cattle producers could get better sleep with Livestock Risk Protection (LRP) insurance. Christen and Wareham made their comments during Nebraska Farm Bureau’s Inside Profitability Series webinar on June 30. Both mentioned that LRP helped them sleep at night knowing they were protected from downside price risk. Cattle prices can swing wildly, and when market shocks occur, it’s too late for producers to respond. LRP can help producers manage price risk.

The webinar featured Zach Hyland, regional crop consultant for Farm Bureau Financial Services, with a background on LRP and how it can be used to reduce price risk. Christen and Wareham also shared their experiences with using LRP in their operations. A link to a recording of the webinar, fact sheets on LRP, and UNL articles on the effectiveness of LRP can be found here: https://www.nefb.org/agricultrual-issues/producer-resources-forms/inside-profitability-series.

The USDA Risk Management Agency announced changes last year to make LRP more usable and affordable for producers. With the changes, producers now pay premiums at the end of the endorsement period rather than on the purchase date. And, coverage levels above 80 percent receive a 5-percentage point bump in subsidy levels. For example, for a coverage level of 95 percent, the subsidy increased from 20 percent to 25 percent. The subsidy remained at 35 percent for coverage levels less than 80 percent. The changes were effective with the 2021 coverage year which began on July 1 of last year and ended June 30.

It appears the changes have enticed more cattle producers to purchase LRP. Figure 3 plots the number of feeder cattle in Nebraska covered under LRP since 2005. As Figure 3 illustrates, the number of head insured increased dramatically in the 2021 coverage year, exceeding 60,000 head, nearly doubling the previous high in 2011. The number of fed cattle covered in 2021 surged even more, equaling nearly 49,000 head, well above the 2005-2019 average of about 2,000 head. This doesn’t mean LRP is the right choice for every cattle producer. It does suggest, though, that livestock producers should investigate LRP as a possible risk management tool for their operations.

Figure 3. Nebraska Feeder Cattle Covered Under LRP

Source: USDA Risk Management Agency

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