8 CALF News • August | September 2020 • www.calfnews.net actual ending value is below the cover- age price, you may receive an indemnity payment for the difference between the coverage price and actual ending value.” Users submit a one-time application for LRP-Fed Cattle coverage. After the application is accepted, users may buy specific coverage endorsements for up to 2,000 head of 1,000- to 1,400-lb. heif- ers and steers that will be marketed for slaughter near the end of the insurance period. Users may insure up to 4,000 head per producer for each crop year ( July 1 to June 30). All insured cattle must be located in a state approved for LRP-Fed Cattle at the time you buy insurance coverage, LRP says. LRP-Fed Cattle is available in: Ala- bama, Arizona, Arkansas, California, Colorado, Florida, Georgia, Idaho, Illi- nois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mis- sissippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Wash- ington, West Virginia, Wisconsin and Wyoming. The length of insurance coverage available for each specific coverage endorsement is 13, 17, 21, 26, 30, 34, 39, 43, 47 or 52 weeks. Users may buy multiple specific cover- age endorsements with one application. Insurance coverage starts the day the user buys a specific coverage endorse- ment and RMA approves the purchase, LRP states. For LRP-Feeder Cattle coverage, users can buy specific coverage endorsements throughout the year for up to 1,000 head of feeder cattle that are expected to weigh up to 900 pounds at the end of the insurance period. The annual limit for LRP-Feeder Cattle is 2,000 head per producer per year ( July 1 to June 30). As with the fed cattle LRP, length of feeder insurance coverage available for each specific coverage endorsement is 13, 17, 21, 26, 30, 34, 39, 43, 47 or 52 weeks. The feeder LRP is available in virtually every cattle producing state. A small operator’s put option LRP insurance operates similarly to a simple put option. It enables producers or feeders to set a floor price when cattle will be marketed. Shari Holloway, an insurance agent for AgDefense Risk Management in Chat- tanooga, Okla., says the LRP program is a different way for producers to hedge themselves without needing a large load of cattle. “LRP is the security of a put option or even a contract without the strings,” she says.“You can set that safety net where you need it so unexpected events don’t cost you all of the progress you’ve made with your calf crop. You can sell high if the market is good.” LRP prices are typically set daily by RMA. They are similar to the day’s cur- rent futures market. Here are examples of typical LRP offerings: For an LRP policy for fed cattle placed on feed in July that will finish in October, the expected ending value was about $102/ cwt. Using a 96 percent coverage level, the cattle could be covered at about $99/cwt., at a premium cost of about $3.30/cwt. For cattle placed in August to finish in December, the end value would be set at about $106. At about 90 percent coverage, the cattle would have about a $94.80 floor price, at a premium cost of about $1.60. For “hedging” calf prices based on their expected LRP-Feeder value, the LRP end value for October sales was about $140/cwt. For coverage at about 95 percent, the coverage price is $135, with a premium cost of $3.10. For calves to be sold as feeders in November, the end value was projected at $141. For a premium cost of about $2/cwt., for 90 percent coverage, the cattle would have a $127 floor price. In each of these cases, cattle could be sold in a market rally to capture higher prices. The premiums paid for the LRP coverage would be lost, like any insurance premium, if a policy is not collected on. “More people are looking at LRP and are interested in how it works,” Hollo- way says.“Before, LRP users had to pay premiums in advance. In a new provision introduced in July, they don’t have to pay until the contract ends. “The main thing is to know your bottom line. Where do you need to be in order to stay profitable on your cattle? It’s all about managing your risk. If you can’t manage a large risk, you need to do something to protect yourself. If you’re not used to dealing in the futures world, LRP is a surefire way to do it.” Holloway adds that the LRP daily price offers are available until 9 a.m., the follow- ing morning.“That gives cattle producers time to sleep on the offer and not have to immediately pull the trigger,” she says. The future looks better for cattle prices, but there’s never a guarantee. In July, Kansas State University listed projected values of finishing steers in Kansas. Through March 2021, there were actually four months in which closeouts showed a profit (October, December, February and March). Is it worth the risk of not having a floor price set on fed cattle or calf prices? Projections are just projections. And if COVID-19 worsens, the value of hedg- ing in a plague could help keep a lot of folks in business. HEDGING IN A PLAGUE Continued from page 6 Producers can use LRP insurance on up to 2,000 calves per year; it’s a simple put option.