The General Rulebook
Livestock Risk Protection (LRP): Understanding Key Principles and Processes
When it comes to managing the financial risks associated with livestock production, Livestock Risk Protection (LRP) offers peace of mind for producers. However, LRP is more than just a policy—it’s a carefully structured system of risk management that revolves around precise timing, market prices, and daily fluctuations. For producers, understanding the general rules of LRP and how they affect your ability to secure coverage is vital.
This page outlines the key principles behind LRP’s Specific Coverage Endorsements (SCE), helping you make informed decisions about protecting your livestock investments.
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Daily Actuarial Documents: The Foundation of LRP Coverage
At the heart of LRP is the daily publication of actuarial documents by the USDA’s Risk Management Agency (RMA). These documents are essential for understanding the coverage prices and rates available at any given moment.
Why Actuarial Documents Matter
- Daily Price Changes: Coverage prices and rates for LRP change daily, reflecting shifts in the market. The prices and levels of coverage available today may not be the same tomorrow. This makes it essential for producers to stay informed and act within the sales period if they find a price that meets their needs.
- Effective Date Dependency: All coverage is tied to specific dates—the effective date of the SCE and the end date. The coverage and prices displayed in the actuarial documents apply only to the insurance periods corresponding to those dates.
You can find the most up-to-date prices and coverage options on the RMA website, which posts the daily actuarial documents. Link is below:
LRP Coverage: Principles and Process
The core of LRP coverage is straightforward: it shields livestock producers against price declines that occur during a specified insurance period. However, it’s important to understand how LRP functions in practice, from selecting a coverage level to ensuring compliance with application procedures.
Protection Offered by LRP
LRP covers the gap between the coverage price you select and the actual market price at the end of the insurance period, assuming the market price drops below your selected level. Here’s how it works:
- Coverage Price: This is the level of protection provided by the policy on a dollar per cwt basis as published each day on RMA’s website. Coverage prices are listed in the daily actuarial documents and are tied to specific coverage levels.
- Coverage Levels: Coverage levels range from 75% to 100%, but not every level is guaranteed to be available on a given day. The availability of a particular level will depend on market conditions and the daily actuarial documents.
- Authorized coverage levels are 75%, 80%, 85%, 87.5%, 90%, 92.5%, 95%, 96%, 97%, 98%, 99% and 100%
Availability and Sales Period
To activate coverage, you must submit a Specific Coverage Endorsement (SCE) during the sales period, which begins when the coverage price is posted and ends at 8:25 AM Central Time the following day. It’s important to ensure that your SCE is accurate and complete before submission.
Key Points for Submission:
- Timely Submission: SCEs must be submitted during the sales period. Any endorsements received before or after this window will not be valid.
- Flexibility for Revisions: Up until 1:30 PM Central Time on the effective date, you can revise or withdraw your SCE. After this point, your election will be considered final. (Policies concerning revisions and withdrawals may differ among insurance providers.)
Understanding Coverage Limits and Insurance Periods
LRP provides flexibility in how you choose to cover your livestock, but understanding the timing of the insurance period and its limitations is critical for maximizing protection.
Selecting the Right Insurance Period
The insurance period is the length of time during which the market price is monitored. The period should end within 60 days of when your livestock will be ready for market or reach their target weight. The end date is calculated by counting weeks from the effective date of your SCE.
Limitations on Coverage
- Ownership Requirement: LRP only covers livestock that you own during the insurance period. This includes unborn livestock, but only if you have an ownership interest in the pregnant cows or sows at the time the SCE is submitted.
- Class Restrictions: You cannot insure the same class of livestock more than once during a given insurance period, even if prices change.
How Are LRP Premiums Calculated?
Insured Value: Multiply the number of livestock by their target weight, then by the coverage price and your ownership share. This gives you the insured value.
Total Premium: Multiply the insured value by the rate provided in the actuarial documents. The resulting number is your total premium, rounded to the nearest whole dollar.
Subsidy: LRP premiums are partially subsidized by the federal government. The amount of the subsidy varies by the coverage level, but it will be deducted from your total premium, leaving you with the producer premium (the amount you pay).
Indemnity Calculation: How Claims Are Processed
An indemnity is due if the actual ending market price for your livestock is lower than the expected ending value (expected value of the livestock at the end of the insurance period, as published
on RMA’s website at the time the SCE was established). The calculation is straightforward but requires documentation to verify the sale of livestock.
Steps to Calculate Indemnity:
Multiply the number of covered livestock by their target weight.
Subtract the actual ending market price from the coverage price.
Multiply the result by the insured share to determine your indemnity.
Ensuring Compliance: Submitting the SCE
Submitting a valid SCE is key to securing coverage. It’s essential to understand the documentation and timing requirements to avoid issues later.
Submitting a valid SCE is key to securing coverage. It’s essential to understand the documentation and timing requirements to avoid issues later.
Compliance Guidelines
- Agent and Producer Signatures: Both the insured and the agent must sign the SCE, and it must be submitted through the AIP’s system by 8:25 AM Central Time on the effective date. If there’s a delay, the SCE may still be accepted up until 12:00 Noon if specific conditions are met.
- Supporting Documentation: You’ll need to provide documentation that proves your ownership of the livestock. For swine, this might include records related to unborn swine produced by sows you own, while for cattle, sales records will be necessary.
Building Trust Through Knowledge
At the end of the day, Livestock Risk Protection isn’t just about securing a policy—it’s about understanding how the process works and ensuring your decisions align with your operation’s needs. By keeping yourself informed and engaged with the daily actuarial documents, you’re taking the best steps toward protecting your livestock and livelihood.
We hope this information provides clarity and value to you as a producer. If you have any questions or need further guidance on navigating LRP, feel free to reach out to us and we can walk you through the process.
Earning your trust means ensuring you have the knowledge and resources needed to make the best decisions for your business—whether you choose to invest in LRP today or simply want to understand it better for the future.