With cash outlays for feeder cattle and replacement females at record highs, Livestock Risk Protection (LRP) and Livestock Gross Margin (LGM) have become essential tools for managing financial risk. Recent USDA updates have made these subsidized programs more accessible, now allowing producers to insure unborn calves and set price floors for multiple stages of production. According to Iowa State University’s Patrick Wall, these tools are designed to protect equity without limiting the upside of a strengthening market.
“Cash outlay for feeders, replacement heifer calves, yearlings, bred heifers and bred cows is certainly higher than ever in all sectors,” says Wall, ISU Extension and outreach beef specialist, in a recent Growing Beef Newsletter article. “No doubt, two important programs supporting the market are Livestock Risk Protection and Livestock Gross Margin. Recent updates have made these programs more attractive and less expensive to a much wider audience in the supply chain.”
Can You Insure Unborn Calves with LRP?
According to Wall, unborn calves can now be insured for a future sale date.
“This program can be utilized for both purchased bred females just arriving on farm as well as pregnant heifers and cows that have been part of the operation already,” he says. “The premium is subsidized by the government, much like traditional crop insurance.”
He shares these options:
- If a producer has 100 cows to calve in April to May they can insure 95 unborn calves up to 599 lb. at weaning.
- If a producer bought a group of bred heifers, they can insure their upcoming progeny to protect their initial investment.
“LRP does not insure the viability, health, weight or gavel price for any of those calves,” Wall explains. “You still have to manage them to the best of your ability. It does insure the futures price for feeder cattle will be at least what you insure it to be, on the date you specify. If the price actually goes up, there’s no penalty or premium increase; simply put those extra dollars in your pocket on sale day.” - If a producer wants to hold on to them post-weaning for another 90 days, they can insure them again for a future sale date.
- If a producer wants to market some on-farm feed through the cattle by feeding them clear to finish, the producer can insure them a third time clear to market weight. “You’re setting the floor for the futures market,” he says. “The top side is still open should the market strengthen further during the feeding period.”
What is LGM?
“For the feedlot sector, margins matter,” Wall explains. “This program insures both the revenue side — fed cattle price — and the cost side — feeder cattle price and corn price — of a transaction, working in tandem.”
While the feed necessary to finish a given set of calves may already be purchased, its value can change. Likewise, futures markets on both fed and feeder cattle can be quite volatile.
“In some cases, all three segments of LGM can react negatively to each other,” Wall says. “This program insures that doesn’t happen for you, with a subsidized premium as well.”
Wall recently interviewed Tony Latcham of Stockguard Risk Management for the “Iowa Beef Collective” podcast. The episode summarizes both LRPs and LGMs and how to effectively use them, regardless of the size and scope of your operation.
