Livestock 

Risk Protection (LRP)
A Price Risk Management Tool
for Livestock Producers

Tim Petry
Extension Livestock Economist
www.ndsu.edu/livestockeconomics
November 14, 2017

FeedlotMgmtClass‐Nov2017.pptx
 Price Risk Management Tools

• Cash forward contract

• Video and internet auctions
• CME futures
• CME options
• Livestock Risk Protection (LRP)
• Which one or combination fits your
marketing plan?
Which Is Best?
Depends on expected price trend

Uptrend: cash market

Downtrend: futures
cash forward contract
video and internet auction

?: options or LRP
(will always be 2nd best)
Livestock Price and Production Patterns
1. Seasonal 3. Long term
2. Cycle 4. Unexpected

Drought

Competing Meats
?
 WASDE
U.S. Meat Production and Prices
Change Change  2017 Change  2018 Change 
2014  2015 from  2016  from  forecast from  Forecast from 
2014 2015 2016 2017
Production Billion Pounds Percent Pounds Percent Pounds Percent Pounds Percent

Beef 24.25 23.70 ‐2.3 25.22 6.4 26.4 4.7 27.62 4.6
Pork 22.84 24.50 7.3 24.94 1.8 25.74 3.2 26.93 4.6
Broilers 38.55 40.05 3.9 40.7 1.6 41.54 2.1 42.28 1.8
Turkey 5.76 5.63 ‐2.3 5.98 6.2 6 0 6.03 0.5
Total meat 92.17 94.63 2.7 97.6 3.1 100.43 2.9 103.61 3.2

Prices Dollars/cwt        Dollars/cwt 

Steers 154.56 148.12 ‐4.2 120.86 ‐18.4 121.80 .1 117.25 ‐3.7

Hogs 76.03 50.23 ‐33.19 46.16 ‐8.1 49.01 6.2 45 ‐8.2
Cents/lb Cents/lb

Broilers 104.9 90.5 ‐13.7 84.3 ‐7.0 93.8 11.3 88.5 ‐5.7
Turkey 107.6 116.2 8.0 117.1 .8 96.6 ‐17.5 99.3 2.8
Nov 9, 2017
 SEASONAL PRICE INDEX – FED STEERS
2007‐2016
Index
1.15

1.10

1.05

1.00

0.95

0.90

0.85
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

 Max. Index  Avg. Index Min. Index

Data Source:  USDA‐AMS, Compiled & Analysis by LMIC
Livestock Marketing Information Center 05/13/17
 SLAUGHTER STEER PRICES
5 Market Weighted Average, Weekly
$ Per Cwt.
150

140

130

120

110

100

90
JAN APR JUL OCT

2016 2017 2017 Fut 2018 Fut

Why May Cattle Price Peak?

C-P-62 M-P-25
11/06/17
11/06/17

C-S-18
M-S-09
11/03/17
10/23/17
 I-N-16
11/06/17
 U.S. Ranking in World

Production Exports
Beef 1 4,3,1
Pork 2 1
Chicken 1 2
Turkey 1 1
Eggs 2 2
 Major U.S. Meat Export Customers
BEEF PORK CHICKEN
Japan Mexico Mexico
Mexico Japan Canada
Korea Canada Cuba
Canada China Hong Kong
Hong Kong Korea Taiwan
China? Australia
Ø
China
Competing Meats

H-P-09 P-P-01
10/30/17 11/03/17

S-P-05
10/13/17
APR LIVE CATTLE FUTURES

BE
LRP – revenue insurance program that is 
reinsured and subsidized by the Federal 
Crop Insurance Corporation (FCIC)

• 2001: pilot program for swine
• 2003: feeder and fed cattle in selected states
• 2004: all 3 available in North Dakota
• Sep. 17, 2007: lamb LRP available in North Dakota 
and selected states
 LRP
• Insures against price declines
• Similar to put options
• 13% of premium is subsidized
• Crop insurance agents do not have to offer
• List of approved agents at:

www3.rma.usda.gov/apps/agents/index.cfm
 Beginning Farmer
• 23% premium subsidy
• 5 yr. or less actively farming
• Does not include years when
• under 18
• full time military
• post‐secondary education
 LRP
• Feeder Cattle (beef, dairy, Brahman)
• Under 600 lbs
• Steers or heifers
• 600‐900 lbs
• Steers or heifers
• Fed cattle
• Hogs
• Lambs
 Fed Cattle (Steers or Heifers)
• 1000 – 1400 lb., Select or higher, YG 1‐3
• Based on 5‐area weighted average 35 to 65 percent 
choice steer price
• www.ams.usda.gov/mnreports/lm_150.txt
• Released each Monday morning
• Any # up to 2000 head per SCE
4000 maximum per year
LM_CT150
St. Joseph, MO Mon Nov 13, 2017 USDA Market News Service

5 AREA WEEKLY WEIGHTED AVERAGE DIRECT SLAUGHTER CATTLE

Texas/Oklahoma/New Mexico; Kansas; Nebraska; Colorado; Iowa/Minnesota feedlots
(Includes all transactions regardless of delivery day)
For: Week Ending Sunday, 11/12/2017

Confirmed: 94,559 Week Ago: 117,538 Year Ago: 95,979

LIVE FOB BASIS - Beef Breeds

Head Weight Price Avg Wtd Avg

count Range Range Weight Price
STEERS
Over 80% Choice 19,966 1,300-1,600 118.00-125.00 1,496 121.93
65 - 80% Choice 16,113 1,265-1,590 119.00-124.00 1,430 123.34
35 - 65% Choice 5,471 1,220-1,600 122.00-124.00 1,391 123.71
0 - 35% Choice - -
Total all grades 41,550 1,220-1,600 118.00-125.00 1,457 122.71
HEIFERS
Over 80% Choice 12,935 1,200-1,500 119.00-124.00 1,332 122.96
65 - 80% Choice 8,506 1,100-1,470 118.00-124.00 1,261 123.26
35 - 65% Choice 3,677 1,100-1,450 122.00-124.00 1,202 123.68
0 - 35% Choice - -
Total all grades 25,118 1,100-1,500 118.00-124.00 1,289 123.17
 Insurance Period
Policies may be available for the following 
weekly lengths:  
13, 17, 21, 26, 30, 34, 39, 43, 47, 52
 Actuarials
Coverage prices & rates change daily and are 
posted on the USDA Risk Management 
Agency (RMA) web site

www3.rma.usda.gov/apps/livestock_reports/main.
aspx

Coverage levels will range from 70‐100% of 
expected price
 Indemnity

 Payment based on difference between COVERAGE PRICE (CP) 
& actual USDA‐AMS price (AP)

CP = $120/cwt
AP = $115                     
$5/cwt payment

 Producers must submit 04‐LRP‐Claim Form within 60 days of 
end of contract
 Steps to LRP
1. Submit eligibility application form with insurance 
agent
2. Select a SCE (coverage prices and premiums are 
available after 3 PM (CST) except holidays)
1. Number of head
2. Policy length closest to marketing date
3. Estimated average market weight
4. Choose coverage price
3. Pay premium to agent
4. Agent submits SCE form electronically (hours are 
between 4 PM and 9 AM (CST), Tues‐Sat only)
 Some Packers Offer Futures‐based  
Forward Contracts

 No need for broker, margins, etc.

 Price is + or – futures contract price

 Other specifications
 LRP – Feeder Cattle
• Based on Chicago Mercantile Exchange (CME) 
feeder cattle price index which is available at 
www.cmegroup.com
• 700‐899 lb, M & L # 1, feeder steers at markets 
reported by USDA‐AMS
• Same “basis” considerations as futures and options
 85
95
105
115
125
135
145
155
165
175
185
195
205
215
225
235
245
3/3/08
6/3/08
9/3/08
12/3/08
3/3/09

22%
6/3/09
9/3/09
12/3/09
3/3/10

10%
6/3/10
9/3/10
12/3/10
3/3/11

17%
6/3/11
9/3/11
12/3/11
3/3/12

19%
6/3/12
9/3/12
12/3/12 0%
3/3/13
6/3/13
9/3/13
12/3/13
3/3/14
10%

6/3/14
9/3/14
7%

12/3/14
3/3/15
6/3/15
CME Feeder Cattle Index

9/3/15
12/3/15
3/3/16
6/3/16
9/3/16
23%

12/3/16
3/3/17
6/3/17
11%

9/3/17
?
 CME Index and LRP
Beef  Steers Beef Heifers Brahman Dairy
Under 600 lbs 110% 100% 100% 85%
600‐900 lbs 100% 90% 90% 80%
JAN FDR CAT
 MED. FRAME #1 STEER CALF PRICES
550‐600 Pounds, N.D., Weekly
220

200

180

160

140

120

100
JAN APR JUL OCT

2017 2016 2009‐2013 Ave

 MED. & LRG. #1  FEEDER STEER PRICES
750‐800 Pounds, N.D., Weekly
170

160

150

140

130

120

110

100
JAN APR JUL OCT

2018 Futures 2017 Futures 2017 2016 2009‐2013 Ave

 Why?
DEC Corn APR LV CAT

OK WTR WHT
 Fall Steer Calf LRP Results
July 15 to Nov 15 (17 wk)
Coverage  LRP 
Year Price Premium Actual Price Payment LRP Profit
2005 105.78 1.67 127.75 ‐‐ ‐1.67
2006 114.42 1.49 107.55 6.87 5.38
2007 123.20 2.58 119.27 3.93 1.35
2008 127.38 5.46 107.37 20.01 14.55
2009 112.18 3.73 102.94 9.24 5.51
2010 121.02 2.88 122.61 ‐‐ ‐2.88
2011 149.57 5.00 156.92 ‐‐ ‐5.00
2012 155.75 4.00 158.33 ‐‐ ‐4.00
2013 171.29 3.13 181.97 ‐‐ ‐3.13
2014 231.16 7.25 264.95 ‐‐ ‐7.25
2015 229 7.17 199.41 29.59 22.42
2016 145.46 4.97 137.92 7.54 2.57
2017 165.04 8.20
SF_LS766
Sioux Falls, SD Thu Nov 17, 2016 USDA-ND Dept of Ag
Market News

Stockmans Livestock Exchange

Feeder Cattle Weighted Average Report for 11/17/2016

Receipts: 4879 Last Week: 4922 Year Ago: 3841

Feeder Steers Medium and Large 1

Head Wt Range Avg Wt Price Range Avg Price
9 388 388 181.00 181.00
27 405-416 415 182.00-191.25 190.25
197 462-492 476 150.50-166.25 158.65
313 502-548 524 142.50-156.75 150.11
405 551-591 577 132.75-143.50 137.20
412 602-646 623 127.25-134.75 132.04 Calves
505 650-695 671 125.00-136.75 130.28 Calves
163 700-730 714 119.00-128.75 125.14 Calves
48 752-767 764 115.00-118.25 117.91 Calves
 Backgrounding Steer LRP Results
Aug 25 to Jan 20 (21 wk)
Coverage  Actual  LRP  LRP 
Year Price Premium Price Payment Profit
2007‐08 116.05 3.70 97.16 18.89 15.19
2008‐09 106.01 3.23 95.14 10.87 7.64
2009‐10 99.98 2.82 97.46 2.52 ‐.30
2010‐11 116.01 3.56 127.27 0 ‐3.56
2011‐12 129.91 3.72 150.39 ‐‐ ‐3.72
2012‐13 143.89 2.96 146.88 ‐‐ ‐2.96
2013‐14 154.02 3.09 170.49 ‐‐ ‐3.09
2014‐15 204.10 7.17 221.87 ‐‐ ‐7.17
2015‐16 188.09 7.29 159.40 28.69 21.40
2016‐17 130.04 5.89 133.28 ‐5.89
2017‐18 140.02 8.04
CME Index Price $159
 Cattle LRP Timetable
MARKET MARKET LRP CONTRACT
CLASS DATE 13 17 21 26
Under 600 Nov 15 AUG JUL JUN MAY
Over 600 Feb 15 NOV OCT SEP AUG
Fed May 15 FEB JAN DEC NOV
 LRP
Advantages
 Small numbers can be hedged
 ↑600, ↓600, heifers, dairy
 Premium subsidized 13%
 No brokerage or margin
 Receive higher prices in bull market
 Available in months where no futures/options
 All coverage prices available daily

Disadvantages
 Not “flexible” like futures and options
 Must own the livestock
 10% rule for calves and heifers
2018: Corn Prices and Beef Exports?
Questions!