Livestock Risk Protection Insurance: A Tool to Help Manage Risk

Feeder calf and fed cattle prices are currently high, and so are the input costs to raise them. Price volatility has increased over the past decade, and factors such as trade disruptions, and media reports of health scares can quickly cause national prices to drop.  Beef producers are taking on a lot of risk. To help mitigate that price risk, beef producers can look at using Livestock Risk Protection Insurance (LRP) to protect against unforeseen price drops.

There have been several changes in the last few years to make LRP more favorable for farmers to use.  Some of these changes are as follows: 

• Increased subsidy levels from the original 13 percent subsidy to 35 to 55 percent depending on the percentage of the expected ending price a producer wants to insure.
• Changing the premium due date to the end of the coverage period rather than the beginning.
• Expanding the sale window from 30 days to 60 days prior to the ending coverage. Cattle can be sold up to 60 days prior to the ending coverage date without affecting coverage of the policy purchased. 
• Producers may purchase coverage on animals they have a valid purchase agreement for with a fixed price but have not taken possession of as long as possession is taken 90 or more days before coverage ends. Check with your agent to make sure the purchase agreement qualifies for coverage. 
• There are new categories specific for dairy producers, that offer coverage for cull cows and unborn calves (beef dairy cross, and beef calves sold within the first two weeks after birth).  Details on these two categories are not addressed in this article.
  

Taken together, these changes have reduced out-of-pocket costs, improved cash-flow timing, and increased flexibility, making LRP more comparable to other price risk management tools.

LRP is an insurance policy from USDA that can be used to implement a price floor, similar to a put option, while still allowing the opportunity to capture higher prices should they occur.  Some advantages of LRP over buying a put option is that LRP covers the actual number of animals a producer has in a group rather than being confined to futures market contract sizes of 40,000 pounds of live cattle or 50,000 pounds of feeder cattle. Additionally, the LRP premium is subsidized.  The policy does not cover poor animal performance or animal death.  It protects against unforeseen price declines in national market prices during the coverage period.  Because indemnities are based on national price indices rather than individual sale prices, LRP is best viewed as protection against broader market downturns rather than farm-specific pricing outcomes.

LRP is offered for feeder cattle and fed cattle.  Feeder cattle coverage is offered in different categories based on expected ending weight (less than 600 pounds, and 600 to 1,000 pounds), breed type (beef, predominantly brahma, or predominantly dairy), and sex, as some categories require that heifers and steers have separate coverage while other categories do not.  There are also feeder cattle categories for unborn calves that allow producers to purchase coverage prior to the calf crop being born.  Producers should work with their insurance agent to determine the correct policy for the type of feeder cattle they want to purchase coverage for, and what type of proof of ownership and sales records are needed. Fed cattle coverage is not divided into different categories.  Producers can select coverage lengths ranging from 13 to 52 weeks, and coverage rates can be chosen from 70 to 100 percent of the expected ending value.  Because coverage categories vary by weight, breed type, and sex, producers should work closely with an insurance agent to ensure the correct endorsement is selected.

Coverage prices offered for feeder cattle are based on the expected ending value, which is derived from Chicago Mercantile Exchange (CME) feeder cattle futures contracts.  Price adjustment factors are used to reflect differences in market prices of the different categories of feeder cattle relative to the type of feeder cattle the CME futures contracts and CME feeder cattle index represent (which reflects prices for 700-899 lb. #1 and #2 muscle steers).  Coverage prices and premiums are also adjusted for the different percentages of coverage offered.  Fed cattle expected ending values are derived from the CME fed cattle futures contracts with coverage prices and premiums adjusted for the different percentages of coverage offered.  

The actual ending value for feeder cattle specific coverage endorsements is derived from the CME feeder cattle index price, which is an index of feeder cattle prices at auctions in 12 states. Fed cattle actual ending values are derived from the five-area weekly weighted average direct slaughter cattle price.  While Wisconsin prices are not included in those calculations, feeder and fed cattle prices in Wisconsin generally move in the same direction as these national price indices, even if local price levels differ. For example, if feeder cattle prices drop in those states they usually drop similarly in all states. 

Let’s look at an example to get an idea of how LRP works. 

Cattle feeder Todd purchased 40 head of beef x dairy cross steers weighing 500 pounds in mid-August 2025.  He submitted the initial application paperwork to his insurance agent and was set to purchase specific coverage endorsements.  From experience, he knows that these cattle will be finished and ready to sell in 280 to 300 days (about 40 weeks) at a finished weight of approximately 1450 pounds.  On August 18^th, he sees the expected ending price for fed cattle at 39 weeks is $229.52 per hundred weight and decided to insure coverage at the 100% coverage level of $229.52 per hundred weight, for a premium cost of $10.41 per hundred weight. The ending date for the coverage is June 18, 2026. 

Looking ahead, USDA Risk Management Agency will determine the actual ending value based off the five-area weighted average slaughter price for June 18, 2026. The indemnity calculation is based solely on the difference between the coverage price and the national actual ending value, regardless of Todd’s actual sale price.  If the actual ending value is less than $229.52 an indemnity payment would be made for the difference between the coverage price of $229.52 and the actual ending value. Todd will pay the premium at the conclusion of the coverage period, regardless of whether an indemnity payment is triggered.  

As Todd purchases additional groups of feeder cattle to fill pens at his farm, he can purchase separate specific coverage endorsements for those groups based on when he expects to market them but is not obligated to do so.

LRP can be used alongside forward contracts, futures, or other marketing tools, depending on a producer’s marketing plan and operation.  When doing so, producers should consult with their insurance agent to ensure program rules are followed and that coverage eligibility is not affected.  Like most insurance, cattle producers should not purchase LRP hoping to collect on it. It is intended to help protect producers against unforeseen price drops that could occur for various reasons.

When used as a regular part of a market risk management plan, LRP insurance can help protect profits in years when markets turn for the worse. The recent changes to the program have made LRP insurance more appealing to cattle producers.  It is difficult to predict when the price will drop. LRP insurance is a safety net, reducing downside price risk by providing a floor using national price expectations while also allowing producers to take advantage of higher national prices if they occur. 

Producers interested in LRP coverage can contact a crop insurance agent who is authorized to sell livestock insurance products. A search tool to find insurance agents authorized to handle LRP can be found at USDA RMA Agent Locator ↗️

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