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Cows on pasture

Here’s why you should consider livestock insurance

There are two insurance programs for livestock producers. Here’s an explanation of how they differ.

Commentary; By Markie Hageman

Insuring your cattle can seem like a daunting task. From my experience as a crop insurance adjuster, many producers and growers don’t fully understand what crop insurance entails, and this can become stressful for an operation. This is understandable, as there are a lot of technicalities when it comes to insurance in any capacity.

For livestock producers, there are certain options available to you, and all are important to become familiar with. Two options available to producers deal with gross margin and decline in price; both funded through the Farm Bill.

Livestock Gross Margin and Livestock Revenue Protection are both programs that are offered by Approved Insurance Providers (AIP). Your insurance agent chooses a certain AIP to work with, and that company is responsible for providing indemnity payments. These two policies can seem quite similar on the surface but knowing which one benefits you and your operation is imperative.

Livestock Gross Margin (LGM) is a policy that insures against a loss of gross margin, or the value of the market livestock minus the cost of feed on cattle and feeder cattle. As stated on the USDA Risk Management Agency website (RMA), “The indemnity at the end of the 11-month insurance period is the difference, if positive, between the gross margin guarantee and the actual gross margin.” The expected gross margin and the actual gross margin are determined using futures prices and can vary between state- and month-specific basis levels.

It is important to note that not every producer in every state is eligible. Only cattle sold for commercial or private slaughter for human consumption in the specified states are eligible for coverage as well. These states are: Colorado, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, North Dakota, Ohio, Oklahoma, South Dakota, Texas, Utah, West Virginia, Wisconsin and Wyoming.

Signups for this policy can be made 12 times in a year, which means there are 12 insurance periods in a year and each of those periods runs for 11 months. This policy can be tailored to fit any size operation and coverage typically begins one month after sales closing.

Livestock Revenue Protection (LRP) insures against a decline in market price during the insurance period. With this policy, fed cattle and feeder cattle are covered with a variety of coverage levels and insurance periods that match the time your cattle would be marketed.

This is available in many states and areas, depending on whether you run fed cattle or feeder cattle. To find these states, be sure to ask your insurance agent or head to the RMA website. Note that the annual limit for LRP-Feeder Cattle and Fed Cattle is 6,000 head per producer per crop year.

As a producer, you choose coverage prices between 70% to 100% of the expected ending value. If, at the end of the insurance period, the actual ending value is below the coverage price, then you will get an indemnity for the difference between the two prices.

There are multiple insurance periods and multiple length choices for this policy. This is determined by the “specific coverage endorsement” (SCE) you select. An SCE is just an option in addition to your base policy and increases your protection.

Producers can have various lengths of coverage that range from just 13 weeks up to 52 weeks. Unlike LGM, which adds coverage with the application, the LRP policy application doesn’t add coverage, only once an SCE is selected does it protect the cattle.

There are a lot of smaller details that differentiate the two policies discussed above, and there are many other questions producers will have on their journey to purchase specific policies. Be sure to contact your insurance agent, research questions on the RMA website, or even reach out to your AIP to get the answers to questions you might have. It is also important to note that neither of these policies cover perils such as death, disease or quarantine.

Hageman is a crop insurance adjuster for ProAg Insurance.

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