livestock risk protection insurance (lrp) overview bill halfman ag agent uw-ex monroe county paul...
Post on 28-Mar-2015
219 Views
Preview:
TRANSCRIPT
Livestock Risk Protection Livestock Risk Protection Insurance (LRP) OverviewInsurance (LRP) Overview
Bill HalfmanBill HalfmanAg Agent UW-EX Monroe CountyAg Agent UW-EX Monroe County
Paul MitchellPaul MitchellAg and Applied EconomicsAg and Applied Economics
UW-Madison and UW-EXUW-Madison and UW-EX
Kelley BranemanKelley BranemanBadgerland Farm Credit ServicesBadgerland Farm Credit Services
What is LRP?What is LRP? Insurance policy that protects Insurance policy that protects
livestock producers from livestock producers from unexpectedunexpected price declinesprice declines Similar to crop insuranceSimilar to crop insurance Creates “floor” for priceCreates “floor” for price
Because market futures are a major Because market futures are a major factor determining available factor determining available coverage prices, so LRP takes into coverage prices, so LRP takes into account “expected” price changesaccount “expected” price changes
LRP available forLRP available for Feeder calves (8 different types)Feeder calves (8 different types)
Steers, heifers, Braham, or dairySteers, heifers, Braham, or dairy < 600 lbs or 600-900 lbs target weight< 600 lbs or 600-900 lbs target weight
Fed cattle (weighing 1,000 – 1,400 Fed cattle (weighing 1,000 – 1,400 lbs)lbs)
Swine: Market hogs on carcass (lean) Swine: Market hogs on carcass (lean) basebase
LRP – Feeder CattleLRP – Feeder Cattle Available coverage prices range Available coverage prices range
approximatelyapproximately 70-95% of Chicago 70-95% of Chicago Mercantile Exchange (CME) futures Mercantile Exchange (CME) futures priceprice
Policies Policies generallygenerally available for the available for the following weekly lengthsfollowing weekly lengths
13, 17, 21, 26, 30, 34, 39, 43, 47, 5213, 17, 21, 26, 30, 34, 39, 43, 47, 52 Policy Size: 1 to 1,000 head per Policy Size: 1 to 1,000 head per
Specific Coverage Endorsement (SCE)Specific Coverage Endorsement (SCE) 2,000/year maximum (July 1–June 30)2,000/year maximum (July 1–June 30)
LRP recognizes 8 different feeder cattle LRP recognizes 8 different feeder cattle types to adjust available coverage types to adjust available coverage pricesprices
Buy separate policies for each type of Buy separate policies for each type of feeder cattle you insurefeeder cattle you insure
Feeder Cattle TypesFeeder Cattle Types
Weight RangeWeight Range
Price Adjustment Factors (PAF)Price Adjustment Factors (PAF)
SteersSteers HeifersHeifersPredominately Predominately
BrahmanBrahmanPredominately Predominately
DairyDairy
<6.0 cwt<6.0 cwt 110%110% 100%100% 100%100% 100%100%
6.0-9.0 cwt6.0-9.0 cwt 100%100% 90%90% 90%90% 80%80%
LRP – Fed CattleLRP – Fed Cattle Available coverage prices range Available coverage prices range
approximatelyapproximately 70-95% of CME 70-95% of CME futures pricefutures price
Policies Policies generallygenerally available for the available for the following weekly lengthsfollowing weekly lengths
13, 17, 21, 26, 30, 34, 39, 43, 47, 5213, 17, 21, 26, 30, 34, 39, 43, 47, 52 Policy Size: 1 to 2,000 head per SCE Policy Size: 1 to 2,000 head per SCE
with 4,000/year maximumwith 4,000/year maximum
LRP-Swine (Market Hogs)LRP-Swine (Market Hogs) Available coverage prices range Available coverage prices range
approximatelyapproximately 70-95% of CME futures 70-95% of CME futures priceprice
Convert live weight to carcass/lean Convert live weight to carcass/lean weightweight
Carcass/lean weight = 0.74 x live weightCarcass/lean weight = 0.74 x live weight Policies for the following Policies for the following weeklyweekly lengths lengths
13, 17, 21, 2613, 17, 21, 26 Policy size: 1 to 10,000 head per SCE, Policy size: 1 to 10,000 head per SCE,
with 32,000 maximum per yearwith 32,000 maximum per year
How do I buy LRP?How do I buy LRP?1) File LRP insurance application with a certified 1) File LRP insurance application with a certified
agent to establish agent to establish eligibility in advanceeligibility in advanceSS#/employer ID, Demonstrate Substantial Beneficial SS#/employer ID, Demonstrate Substantial Beneficial Interest (minimum of 10% ownership of animals)Interest (minimum of 10% ownership of animals)
2) Watch available prices & premiums, they 2) Watch available prices & premiums, they change dailychange daily, valid from 5 PM to 9 AM next , valid from 5 PM to 9 AM next business daybusiness daywww3.rma.usda.gov/apps/livestock_reports/www3.rma.usda.gov/apps/livestock_reports/lrp_select_criteria.cfmlrp_select_criteria.cfm
3) All coverage periods may not be available due 3) All coverage periods may not be available due to insufficient market datato insufficient market data
4) When you like what you see, file a Specific 4) When you like what you see, file a Specific Coverage Endorsement (SCE) with your agentCoverage Endorsement (SCE) with your agentYou must own livestock when filing SCEYou must own livestock when filing SCE
Specific Coverage Endorsement (SCE) specifies: Specific Coverage Endorsement (SCE) specifies: 1) Actual Coverage Price (chosen price floor)1) Actual Coverage Price (chosen price floor)2) Ending Period (date actual price 2) Ending Period (date actual price calculated)calculated)3) Number (and type) of animals3) Number (and type) of animals4) Target Weight at ending period4) Target Weight at ending period5) Premium due (RMA gives 13% subsidy)5) Premium due (RMA gives 13% subsidy)
RMA may terminate RMA may terminate availabilityavailability at any time (but at any time (but not the existing policies sold)not the existing policies sold)
What is the SCE?What is the SCE?
Feeder Cattle ExampleFeeder Cattle Example
Have 25 steers with 100% ownershipHave 25 steers with 100% ownership Expect to sell in 21 weeks at 1,000 Expect to sell in 21 weeks at 1,000
poundspounds On RMA web site for the day, want the On RMA web site for the day, want the
coverage price of $98.40/cwt for 21 coverage price of $98.40/cwt for 21 weeksweeks
Cost is $1.527/cwt (with 13% subsidy)Cost is $1.527/cwt (with 13% subsidy) $1.527 x 10 cwt = $15.27 per head$1.527 x 10 cwt = $15.27 per head 25 x $15.27 = $381.75 total premium25 x $15.27 = $381.75 total premium
When do I collect an When do I collect an Indemnity?Indemnity?
If the Actual Ending Value the RMA posts on If the Actual Ending Value the RMA posts on the web for the Ending Period you choose is the web for the Ending Period you choose is less than the coverage price you choseless than the coverage price you chose
Not the price you actually receive when sellNot the price you actually receive when sell
NOTE:NOTE: Do not have to sell when SCE expiresDo not have to sell when SCE expires Can hold and insure Can hold and insure qualifyingqualifying animals animals
again after SCE expiresagain after SCE expires
Example IndemnityExample Indemnity Had 25 feeder cattle insured for Had 25 feeder cattle insured for
$98.40/cwt in 21 weeks$98.40/cwt in 21 weeks After 21 weeks, suppose the Actual After 21 weeks, suppose the Actual
Ending Value posted by RMA is Ending Value posted by RMA is $98.10$98.10
Collect ($98.40 - $98.10) = $0.30/cwtCollect ($98.40 - $98.10) = $0.30/cwt $0.30 x 10 cwt = $3.00 per head$0.30 x 10 cwt = $3.00 per head 25 head x $3.00/head = $75.0025 head x $3.00/head = $75.00
Actual price, date, weight Actual price, date, weight ≠≠
LRP price, date, weight LRP price, date, weight
When do you actually sell your When do you actually sell your cattle?cattle?
What price do you actually get? What price do you actually get? What do they actually weigh?What do they actually weigh? Do you hold the cattle and buy LRP-Do you hold the cattle and buy LRP-
Fed Cattle?Fed Cattle?
LRP-Fed Cattle ExampleLRP-Fed Cattle Example
25 cattle to sell at 1200 lbs in 34 weeks25 cattle to sell at 1200 lbs in 34 weeks On RMA web site for the day, want the On RMA web site for the day, want the
coverage price of $68.96/cwt for 34 weekscoverage price of $68.96/cwt for 34 weeks Cost is $1.037/cwt (with 13% subsidy)Cost is $1.037/cwt (with 13% subsidy) $1.037 x 12 cwt = $12.44 per head$1.037 x 12 cwt = $12.44 per head 25 x $12.44 = $311.10 total premium25 x $12.44 = $311.10 total premium
Example IndemnityExample Indemnity Have 25 fed cattle insured at Have 25 fed cattle insured at
$68.96/cwt in 34 weeks$68.96/cwt in 34 weeks After 34 weeks, suppose the Actual After 34 weeks, suppose the Actual
Ending Value posted by RMA is Ending Value posted by RMA is $69.01/cwt$69.01/cwt
Collect no indemnityCollect no indemnity
May actually sell them at 1245 lbs for May actually sell them at 1245 lbs for $69.50/cwt after 35 weeks$69.50/cwt after 35 weeks
Some Benefits of LRPSome Benefits of LRP More attractive to smaller More attractive to smaller
producers than other risk producers than other risk management toolsmanagement tools Small numbers can be hedgedSmall numbers can be hedged No brokerage costs or margin callsNo brokerage costs or margin calls
Premium subsidized 13%Premium subsidized 13% Does not tie you to a specific Does not tie you to a specific
packer or buyer like a forward packer or buyer like a forward contract cancontract can
Benefits ContinuedBenefits Continued Actual selling dates and weights Actual selling dates and weights
can differ from what the SCE can differ from what the SCE specifiesspecifies Do not have to sell when SCE Do not have to sell when SCE
expiresexpires Can hold and insure qualifying Can hold and insure qualifying
animals again after SCE expiresanimals again after SCE expires
Benefits ContinuedBenefits Continued Policy can be transferred to new Policy can be transferred to new
owner if animals sold during owner if animals sold during coveragecoverage
Can assign indemnity to a third Can assign indemnity to a third partyparty Lender for exampleLender for example
If some animals die, report within 72 If some animals die, report within 72 hours when known, and still collect hours when known, and still collect any indemnity for those animalsany indemnity for those animals
Limits to LRPLimits to LRP
If you purchase LRP, cannot enter If you purchase LRP, cannot enter into futures or options on the same into futures or options on the same animalsanimals
Must own the animals when file the Must own the animals when file the SCESCE
Lose LRP coverage and premium if Lose LRP coverage and premium if sell earlier than 30 days before SCE sell earlier than 30 days before SCE expires (but can transfer to the new expires (but can transfer to the new owner if sell)owner if sell)
Some ConcernsSome Concerns WI prices not used in formulas, so WI WI prices not used in formulas, so WI
producers may be exposed to more riskproducers may be exposed to more risk Actual price you sell the animals for can Actual price you sell the animals for can
differ from the Actual Ending Valuediffer from the Actual Ending Value Does not pay indemnities for:Does not pay indemnities for:
Slower than expected gainSlower than expected gain Disease, weather, poor feedDisease, weather, poor feed Does not pay full value for death or theftDoes not pay full value for death or theft
RMA can suspend at any timeRMA can suspend at any time
Questions for UWEXQuestions for UWEX Brenda Boetel, UW-RiverfallsBrenda Boetel, UW-Riverfalls
715-425-0702, brenda.boetel@ces.uwex.edu715-425-0702, brenda.boetel@ces.uwex.edu Bill Halfman, UWEX, Monroe CountyBill Halfman, UWEX, Monroe County
608-269-8722, bill.halfman@ces.uwex.edu608-269-8722, bill.halfman@ces.uwex.edu Paul Mitchell, UW-MadisonPaul Mitchell, UW-Madison
608-265-6514, mitchell@aae.wisc.edu608-265-6514, mitchell@aae.wisc.edu
RMA Certified AgentRMA Certified AgentKelley Braneman, Badgerland Farm Credit ServicesKelley Braneman, Badgerland Farm Credit Services
888-227-3243 or 920-261-2275888-227-3243 or 920-261-2275
Kelley.Breneman@badgerlandfcs.comKelley.Breneman@badgerlandfcs.com
top related