The Livestock Indemnity Program (LIP) and Livestock Forage Disaster Program (LFP) were reauthorized with the passage of the Agricultural Act of 2014 on February 7, 2014. LIP provides a payment to producers who experience excess livestock deaths due to adverse weather, including floods and blizzards. LFP provides a payment for grazing losses due to qualifying drought conditions or on rangeland managed by a Federal Agency if the eligible livestock producer is prohibited by the Federal Agency from grazing the permitted livestock on the managed rangeland due to a qualifying fire.
The Agricultural Act of 2014 established a retroactive date for these programs of October 1, 2011, the day after the 2012 Food and Agriculture Reform and Risk Management Act (FARRM) expired. Thus, it will be possible for livestock producers to receive payments for losses in 2012 and 2013. LIP is of particular interest to South Dakota livestock producers impacted by winter storm Atlas that occurred on October 3-5, 2013. LFP is also of interest to producers that had reduced grazing due to drought in 2012 and 2013.
Summary of Program and Coverage Levels
LIP compensates producers at a rate of 75% of market value of the applicable livestock on the day before the livestock died, as determined by the U.S. Secretary of Agriculture. Eligible livestock includes beef and dairy cattle, sheep, swine, horses, poultry, and bison. For more information about LIP, visit the USDA Livestock Indemnity Program website.
LFP payments are based on drought conditions as defined by the U.S. Drought Monitor. When qualifying drought occurs, the payment rate is equal to 60% of the lesser of the monthly feed cost (up to five months) for covered livestock, owned or leased, or the monthly feed cost calculated by using the normal carrying capacity of the eligible grazing land. For more information about LFP drought qualifications and eligibility, visit the USDA Forage Disaster Program website.
What Does This Mean for South Dakota Producers?
Producers are expected to be able to sign up for LIP or LFP sometime in April 2014 after USDA Farm Service Agency (FSA) develops the rules and regulations for these programs. However, preparation of information expected to be required, and preliminary estimates of LIP and LFP payments, can be made now.
It is expected that FSA will establish values for each class of covered livestock for the LIP program. The classes will likely be the same as those established in the mortality rate table previously created by SD FSA. These mortality rates establish "normal" losses for SD producers under "normal" production cycles. Death losses in excess of normal mortality due to adverse weather and attacks by animals reintroduced into the wild by the Federal Government, including wolves and avian predators that exceed those rates would be considered a qualifying loss for LIP.
Table 1. South Dakota Mortality Rates, 2011
LIP Beef Cattle Loss Example
Suppose a producer suffers a loss due to an adverse weather event that results in a 5.5% death loss of the cow herd. Based on the normal mortality rate of 1.5% (Table 1) and further supposing that the cow value was set at $1000/head, the LIP payment would equal $750 per head ($1000/head x 75%) for the 4% (5.5%-1.5%) of the cows that died. ***Note: This is an estimate only. USDA has not yet determined the applicable payment rates.
Like crop insurance indemnity payments, the LIP program is not designed to cover all losses, but to help mitigate the financial affect felt by the producer incurring the loss.
A producer can determine LFP eligibility using the FSA drought eligibility tool. Based on past programs qualified applicants for LFP must demonstrate they either owned or rented range/pastureland in a qualifying county and document the number of animals ran on those acres during the qualifying timeframe.
The formula to determine payment rates is defined in the reauthorized Act. Using the formula, it is likely the rate will range from $21.00-35.00 per head for beef cattle (depending on type), which is consistent with the 2008-2011 payment rates (February 2011 LFP Fact Sheet). ***Note: This is an estimate only. USDA has not yet determined the applicable payment rates.
As an example, Hutchinson (SD) County producers who grazed cattle from May 2012 to August 2012 would qualify for LFP. During this grazing period, Hutchinson County was classified as D4 for at least four non-consecutive weeks, making grazers eligible for five months of feed assistance under LFP.
At $25 per head for 5 months of feed, the producer in this example could anticipate $125 per head in feed assistance from LFP. While this number seems large, annual average grazing costs per head in 2012 for the Northern Great Plains Region were $171.00 (ERS). ***Note: This is an estimate only. USDA has not yet determined the applicable payment rates.
What's Next for SD Producers?
Because the Agricultural Act of 2014 provides coverage retroactively to October 1, 2011, a time period of very high feed costs and drought will be covered by the programs. In 2012, many counties in South Dakota – and the nation – experienced long periods of drought, increasing the average hay and feed costs in the region by 26% compared to 2011. Feed costs in 2013 did not moderate until late in the fourth quarter of the year, making last year another relatively high-cost year for cattle producers. The Northern Great Plains &; Heartland regions faced feed costs that were $150-300+ higher than other regions across the U.S., effectively reducing income per head compared to producers in other regions.
Animal inventory records are expected to be a requirement to qualify for LIP and LFP for prior and future time periods. For previous Livestock Indemnity Programs, documentation and records that were accepted included the quantity of the livestock, its kind/type, and estimated weight of the animal. There have been three levels of documentation accepted by FSA in the past: Verifiable Production, Producer Records and other "Reliable" Documentation, and Third Party Certification.
Assuming the types of documentation remains similar in the reauthorized program, "Verifiable" documents include (but are not limited to): bank or other loan documents, rendering truck receipts or certificates, written contracts, purchase records, production records, and property tax records. If verifiable proof of death is not available, "Reliable" records can be provided. "Reliable" documentation includes (but is not limited to): brand inspection records, pictures (preferably dated), vaccination records, and a combination of veterinary records, balance sheets, inventories for tax records, loan records, bank statements, and private insurance documents. If none of those types of proof of death are available, then the producer may use the third party certification.
While final rules for the programs are being prepared, producers can begin to compile this information in an effort to accelerate the signup process. Participation in these government programs will not replace good production and management decisions. Monitoring and controlling both fixed and variable costs year round, regardless of the weather is still necessary. As producers move forward and recover from drought or storms, like Atlas, continued diligence regarding costs, marketing, risk management and policy all need to be combined to maintain the operation.
For assistance with record keeping and analysis, marketing, or other management areas contact Livestock Business Management Field Specialists Shannon Sand or Heather Gessner, or other SDSU economics specialists and field specialists.
Source: Shannon Sand