LRP: Feeder Cattle
Feeder Cattle: The Nitty Gritty
Feeder cattle operations face many challenges, including fluctuating market prices that can significantly impact profitability. Livestock Risk Protection (LRP) for feeder cattle is designed to protect producers against a decline in market prices. With this insurance, you can ensure that your cattle maintain their value, even if market prices drop.
This page is a detailed guide to help you understand how LRP for feeder cattle works, including coverage options, premium calculations, and how to receive indemnity payments.
For a detailed deep dive into the actual LRP policy click below:
Insurance Period for Feeder Cattle
LRP-Feeder Cattle insurance is available for several different insurance periods. These range from 13 weeks up to 52 weeks, allowing you to choose a time frame that aligns with when you expect your cattle to be marketed.
Available insurance periods:
- 13 weeks
- 17 weeks
- 21 weeks
- 26 weeks
- 30 weeks
- 34 weeks
- 39 weeks
- 43 weeks
- 47 weeks
- 52 weeks
Feeder Cattle Types and Weight Categories
The target weight of your cattle determines their eligibility for LRP and helps establish the proper Price Adjustment Factor (PAF). Feeder cattle are divided into several categories based on their weight and type:
| Cattle Type | Weight Range (cwt) |
| Steers and Bulls | 1.0 – 5.99, 6.0 – 10.0 |
| Heifers | 1.0 – 5.99, 6.0 – 10.0 |
| Predominantly Brahman (Heifers, Steers, Bulls) | 1.0 – 5.99, 6.0 – 10.0 |
| Predominantly Dairy (Heifers, Steers, Bulls) | 1.0 – 5.99, 6.0 – 10.0 |
| Unborn Steers and Heifers | 1.0 – 5.99 |
| Unborn Predominantly Brahman | 1.0 – 5.99 |
| Unborn Predominantly Dairy | 1.0 – 5.99 |
Each of these categories carries different Price Adjustment Factors (PAFs), which help adjust the coverage prices and actual ending values for cattle types that fall outside the standard steer price range used by the CME Feeder Cattle Index.
Price Adjustment Factors (PAFs)
LRP-Feeder Cattle insurance uses PAFs to adjust prices for certain cattle types and weights. These factors help account for differences between steer prices and those for heifers, Brahman cattle, dairy cattle, and unborn cattle.
Here’s a breakdown of the PAFs for different feeder cattle types:
| Weight Range (cwt) | Steers (S) | Heifers (H) | Unborn (S&H) | Predominantly Brahman (PB) | Unborn (PB) | Predominantly Dairy (PD) | Unborn (PD) |
| 1.0 – 5.99 | 110% | 100% | 105% | 100% | 100% | 50% | 50% |
| 6.0 – 10.0 | 100% | 90% | N/A | 90% | N/A | 50% | N/A |
PAFs are already factored into the published prices on the RMA website, so no additional calculations are required by the producer.
How to Calculate Your Premium
Premium calculations for LRP-Feeder Cattle are straightforward. Below is an example to help clarify the process.
Premium Calculation Example:
An operation has 100 head of steer feeder cattle, each expected to reach a target weight of 7.5 cwt. The PAF is 100%, and the insured share is 100%. The expected ending value is $78.95 per cwt, and the producer selects a coverage price of $75 per cwt. The rate for this coverage price is 1.3990%, and the subsidy is 35%. Here’s how the premium is calculated:
- Number of Cattle and Weight:
100 head × 7.5 cwt = 750 cwt. - Insured Value:
750 cwt × $75 coverage price = $56,250.
$56,250 × 1.00 PAF = $56,250 insured value. - Premium Calculation:
$56,250 insured value × 0.013990 rate = $787 total premium. - Subsidy Amount:
$787 total premium × 0.35 subsidy = $275 subsidy. - Producer Premium:
$787 total premium − $275 subsidy = $512 producer premium.
This example shows how to calculate your premium based on your chosen coverage price, insured value, and applicable rate.
How to Calculate an Indemnity Payment
An indemnity is paid out when the actual ending market value of your cattle falls below the coverage price you’ve selected. Let’s go through an example of how an indemnity is calculated.
Indemnity Calculation Example:
You have 100 head of feeder cattle with a target weight of 7.5 cwt each, a PAF of 100%, and a coverage price of $75 per cwt. The actual ending market value is $70 per cwt. Since $70 is less than the coverage price of $75, you’re eligible for an indemnity payment.
- Number of Cattle and Weight:
100 head × 7.5 cwt = 750 cwt. - Price Difference:
$75 coverage price − $70 actual ending value = $5/cwt. - Indemnity Amount:
750 cwt × $5/cwt = $3,750.
$3,750 × 1.00 insured share = $3,750 indemnity payment.
Adjustment Example:
If 5 feeder cattle died during the insurance period, the number of insured cattle is reduced to 95. The indemnity is then calculated as follows:
- Adjusted Number of Cattle and Weight:
95 head × 7.5 cwt = 712 cwt. - Price Difference:
$75 coverage price − $70 actual ending value = $5/cwt.
Adjusted Indemnity Amount:
712 cwt × $5/cwt = $3,562.50.
$3,562.50 × 1.00 insured share = $3,562.50 indemnity payment.
Documentation for Claims and Marketability
To receive an indemnity for feeder cattle not sold by the end date of the insurance period, you must provide the following documentation:
- A certified statement attesting that the feeder cattle were marketable by the end date.
- Proof of ownership, such as livestock purchase agreements, bills of sale, or financing documents.
For unborn feeder cattle, additional documentation is required to verify the number of pregnant cattle at the time coverage was established. Valid records include veterinary reports or sales contracts from previous years.
Conclusion
Livestock Risk Protection (LRP) for feeder cattle is a valuable tool for producers looking to safeguard their operations against market price declines. With customizable insurance periods, Price Adjustment Factors (PAFs), and a clear process for calculating premiums and indemnity payments, LRP can provide the financial protection needed to weather market fluctuations.
If you have more questions or need assistance with your LRP coverage, contact Armor Insurance Agency today for guidance tailored to your livestock operation.
