LRP: Swine
Swine: The Nitty Gritty
When it comes to managing a swine operation, market fluctuations can pose a significant risk to your profitability. Livestock Risk Protection (LRP) insurance for swine is designed to protect producers like you from falling market prices. By locking in a coverage price, you can ensure your swine’s value stays protected, even if market prices drop.
This guide will explain how LRP for swine works, including important details about coverage, examples of how premiums and indemnities are calculated, and the eligibility requirements for insuring both born and unborn swine.
For a detailed deep dive into the actual LRP policy click below:
Insurance Periods
LRP-Swine insurance offers coverage for different periods based on whether the swine are already born or unborn. The period you select should align with when you plan to market your swine.
Born swine can be insured for:
13 weeks
17 weeks
21 weeks
26 weeks
30 weeks
Unborn swine (insured while still in the womb) can be insured for:
30 weeks
34 weeks
39 weeks
43 weeks
47 weeks
52 weeks
Choosing the right insurance period is critical to ensure the policy aligns with the time the swine will reach market weight.
Target Weight
For swine, the target weight at the time of marketing must fall between 1.40 and 2.60 cwt (lean weight). This roughly translates to a live weight of 189 to 351 pounds.
Live weight to lean weight conversion: Multiply the live weight by 0.74.
For example, a swine with a live weight of 250 lbs. is equivalent to 1.85 cwt of lean weight (250 lbs. × 0.74 = 1.85 cwt).
Maximum Insurable Swine
The maximum number of swine that can be insured under one SCE is 70,000 head, with an annual limit of 750,000 head per crop year. If you or anyone with a Substantial Beneficial Interest (SBI) in your operation reaches this limit, no further endorsements can be issued for the crop year.
The maximum number of swine that can be insured under one SCE is 70,000 head, with an annual limit of 750,000 head per crop year. If you or anyone with a Substantial Beneficial Interest (SBI) in your operation reaches this limit, no further endorsements can be issued for the crop year.
Example:
Piggy Pigs Farms has 20,000 head of swine insured under LRP.
- Producer A has a 90% interest in Piggy Pigs Farms, meaning they have 18,000 head covered under their share (20,000 head × 0.90).
- Producer A also insures 10,000 head in their own name.
Total swine insured: 18,000 + 10,000 = 28,000 head, which is below the crop year limit of 750,000 head.
Suspension of Sales
Sales of swine coverage will be suspended if there is a limit movement in CME Lean Hog futures or on certain key USDA reporting days (e.g., the release of the Hogs and Pigs report).
The daily price limit for CME Lean Hog futures is $3.75/cwt, and the expanded price limit is $5.50/cwt as of September 2023.
Insuring Unborn Swine
You can insure unborn swine if you own pregnant sows at the time of policy initiation.
Important details to note:
- Required documentation: You must provide records showing the number of pregnant swine and proof that they are capable of producing the number of unborn swine listed on the SCE.
Acceptable documents include veterinary reports or sales contracts from prior years. - Target weight for unborn swine: At the end of the insurance period, the target weight for unborn swine must be at least 1.40 cwt to be eligible for coverage.
How to Calculate Your Swine Premium
The premium for LRP-Swine is calculated based on the number of insured swine, their expected weight at market, the coverage price, and the premium rate.
Let’s walk through an example to make this process clear.
An operation has 1,000 head of hogs, and the producer expects to market them at a live weight of 2.50 cwt (about 250 lbs). The lean weight conversion factor is 0.74, so the target weight is 1.85 cwt. The expected ending value is $55.00 per cwt, and the producer selects a coverage price of $52.25 per cwt. The premium rate for this coverage price is 2.8708%, and the subsidy is 35%.
Step-by-Step Calculation:
- Number of Hogs and Weight:
- 1,000 head × 1.85 cwt = 1,850 cwt.
- Insured Value:
- 1,850 cwt × $52.25 (coverage price) = $96,663 insured value.
- Total Premium:
- $96,663 × 0.028708 (rate) = $2,775 total premium.
- Subsidy Amount:
- $2,775 × 0.35 (subsidy) = $971 subsidy.
- Producer Premium:
- $2,775 − $971 = $1,804 producer premium.
By following these steps, you can easily calculate the premium for your LRP-Swine policy.
How to Calculate an Indemnity Payment
An indemnity is paid out if the actual ending market value of the swine is lower than the selected coverage price. Here’s an example of how this works.
Indemnity Calculation Example
Using the same operation from the premium example (1,000 head of hogs, target weight of 1.85 cwt, coverage price of $52.25 per cwt), let’s say the actual ending value turns out to be $44.80 per cwt. Since this is lower than the coverage price, an indemnity is due.
Step-by-Step Calculation:
- Number of Hogs and Weight:
- 1,000 head × 1.85 cwt = 1,850 cwt.
- Price Difference:
- $52.25 (coverage price) − $44.80 (actual ending value) = $7.45/cwt.
- Indemnity Amount:
- 1,850 cwt × $7.45/cwt = $13,783 indemnity payment.
By tracking the actual market values against your coverage price, you’ll know whether an indemnity is owed and how much to expect.
Documentation for Indemnity Claims
To receive an indemnity payment for your insured swine, you must provide proof of ownership or sale.
Documentation can include:
- Sales records showing the number of swine sold, the sale date, and the weight of the swine.
- If the swine were not sold by the end date, provide ownership verification documents such as purchase agreements or bills of sale, along with a certified statement confirming that the swine were marketable at the end date.
For unborn swine, you must also provide documentation proving your ownership interest in the pregnant sows.
Conclusion
Livestock Risk Protection (LRP) for swine offers essential price protection for producers, ensuring that your operation is covered if market prices drop. Understanding how to calculate premiums, determine indemnity payments, and comply with documentation requirements is key to making the most of this insurance.
For more information or personalized assistance with LRP for swine, reach out to Armor Insurance Agency. We’re here to help you protect your investment and make informed decisions for your swine operation.