Cow-calf operators who plan to market calves in the fall can purchase price insurance this summer, according to South Dakota State University extension risk and business management specialist Matt Diersen.
Livestock Risk Protection is price insurance available in many states. LRP will be useful for producers with feeder cattle sold at less than 600 pounds. Small operations or producers with a few unprotected head can use LRP at a low cost compared to purchasing options because there is no lower limit on the number of head a producer can cover. LRP does not lock in a price for the calves; it sets a floor price, several of which are around $110 per hundredweight for lightweight feeder steers.
To obtain this kind of price protection, producers have had to use options on feeder-cattle futures. Futures and forward prices for cattle are at relatively high levels, making calves quite valuable. LRP has price-adjustment factors for heifers and lightweight feeders, which should make LRP work better than using options, Mr. Diersen says.
LRP is only price insurance, covering price risk and limited to less than 95 percent of the forward-price levels. Coverage can be purchased for periods of three to seven months and is most effective when producers intend to sell their cattle within the final 30 days of coverage.
For more information, contact a crop-insurance agent who is eligible to sell LRP. Additional background information is available online at http://agbiopubs.sdstate.edu/articles/FS927.pdf.