By EMMA HOPKINS-O’BRIEN

Indiana Correspondent

WASHINGTON, D.C. — The USDA recently made changes to its Livestock Risk Protection Insurance Plan (LRP) that it says will improve coverage and risk management for beef cattle producers.

LRP allows cattle producers to insure between 70-100 percent of the projected price of their cattle and is based on feeder cattle futures prices, depending on cattle sex and weight. The program is targeted toward cow-calf, stocker, and feedlot operations.

The following updates were made to address frequent complaints that the program was too expensive and that its coverage options did not correspond to the months in which producers were selling their livestock:

•Increased LRP subsidy from 13 percent for all coverage levels to a range from 20-35 percent based on the coverage level selected

•Updated the Chicago Mercantile Exchange trading requirements to allow for more insurance endorsement lengths to be offered for producers to purchase

•Increased per-head and annual head limits – fed cattle and feeder cattle: 3,000 head per endorsement and 6,000 head annually

Andrew Griffith, an extension economist and assistant professor in agricultural and research economics at the University of Tennessee, is well-versed in the original LRP program, having completed research on it with his colleagues just a couple years ago.

In that study, his group found LRP was not a very useful option for feeder cattle producers in Tennessee due to the cost incurred by farmers. Of the changes to LRP, Griffith believes increased subsidy has the most potential of being helpful to farmers.

“The change that will be most beneficial to producers will be the increased governmental subsidy and the increased number of offerings,” he said. “This will make the insurance product more affordable to producers and provide alternatives that a producer may find reasonable for setting a price floor.”

Glynn Tonsor, professor of agricultural economics at Kansas State University, said the changes could enhance the appeal of the program.

“The changes in premium subsidy rate and volume eligible for coverage will enhance appeal of the LRP program,” he said. “Anything that reduces the out-of-pocket cost and increases the volume of coverage available will increase enrollment.”

In terms of the increase in animals allowed to be covered under the new rule, Griffith said the changes may not be what most producers are looking for. “The increase in number of animals covered may make a difference for a few producers across the nation, but it will not influence many producers at the feeder cattle level, as many of these producers marketed fewer than the maximum in the previous program max,” he said.

“It is also not likely to influence many large producers, as they have the ability to use futures and options, which have more flexibility when managing risk. Thus, many of these producers should be using futures and options.”

Griffith said the highlight of the changes is the increased subsidy.

“Our research showed that the program was cost-prohibitive because the insurance was expensive and very unlikely to ever pay an indemnity,” he explained. “I doubt it will assist producers from the standpoint of facing tight margins. Anytime the cost of a risk management alternative is reduced, it does require re-evaluating the program and its use in an operation.”

Similarly, Tonsor is not positive the changes will be enough to actually increase enrollment in LRP.

“What is hard to know is exactly how many more animals will be enrolled, “ he said. “To know that, a focused study would have to be conducted, and I am not aware of one that has.”

All in all, though the changes are a step in the right direction, Griffith said he is hesitant to call them improvements.

“They are simply changes that are likely to lead to more producers adopting the use of LRP,” he said. “If everything else remains the same, then the changes to the program, including the cost of LRP being reduced, the number of offerings being increased, and the maximum number of head being increased, should make the program more favorable for use by producers.

“I cannot say it is worth a producer purchasing the product. as there are sure to be many offerings that are still not worth the cost.”

Tonsor, who has also completed research on risk management, has made a tool available online to help producers decide if LRP is right for them and their operations, at www.agmanager.info/k-state-feeder-cattle-risk-management-tool