3 pp., 1 map, 1 tableUSDA is offering a new insurance program to help livestock producers manage lamb price risk. This publication explains requirements of the program and the way it works

Anderson, David P.

Bevers, Stan

Pena, Jose G.

Thompson, Bill

Texas A&amp;M Repository

1Livestock Risk Protection-Lamb:  New Insurance Program to Help Ranchers Manage Lamb Price RiskRisk ManagementE-470RM4-14.0 09-08*Professor and Extension Economist–Management, Assistant Professor and Extension Economist–Management, Professor and Extension Economist–Management, and Professor and Extension Economist–Livestock and Food Product Marketing,The Texas A&M System.USDA’s Risk Management Agency (RMA) is offering a new federally subsidized Livestock Risk Protection-Lamb (LRP-Lamb) insurance program. The program began in the Fall of 2007 to help livestock producers manage lamb price risk. This insurance program is very similar to the LRP insurance for feeder cattle, which has been available for 4 years. The LRP-Lamb insurance program is de-signed to insure against unexpected declines in lamb market prices. Sheep producers in 27 states (see Fig. 1) may select from a variety of coverage levels and periods of insurance to cor-respond with general lamb feeding, production and marketing practices. While the LRP-Lamb program’s price protec-tion is centered around slaughter lamb prices, the program covers both lambs that are sold directly off pasture or finished in a feedlot. Policies may be purchased weekly (on Monday only, 10:00 a.m. through 7:00 p.m. CST) through-out the year from approved livestock insurance agents. Premium rates, coverage prices, and actual ending values are posted online weekly.LRP-Lamb ConceptsThe LRP-Lamb insurance contract does not guarantee the producer a cash price, but insures against a decline in national slaughter lamb prices below an established coverage price. USDA-RMA uses prices published each Friday in the National Weekly Slaughter Sheep report at www.ams.usda.gov/mnreports/lm_lm352.txt to predict the expected price of lambs 13, 26 and 39 weeks in the future. If, at the end date of cover-age, actual ending values based upon the week-ly average prices for “Formula Live Lambs” are less than the selected coverage price, producers will have 60 days to file an indemnity claim. Coverage is purchased on a specific number of head, with a target weight per head identified by the producer.Other LRP-Lamb RequirementsLamb target weights refer to the average • anticipated weights of covered lambs at the end of an insurance period. Lamb insurance is offered for 13-, 26- and • 39–week periods (endorsement length). Producers are expected to select an Jose G. Peña, William J. Thompson, Stan Bevers and David Anderson*States included in the LRP-Lamb Pilot ProgramFigure 1. Livestock Risk Protection-Lamb.2endorsement length closest to the time lambs are to be marketed or slaughtered.Producers must apply for LRP-Lamb • insurance coverage through a crop insurance agent who is authorized to sell LRP. A Substantial Beneficial Interest Reporting Form must be submitted with the application to identify any entity that has at least a 10 percent share in the lambs.Once an application for coverage is • approved, a producer may activate coverage at any time by applying for a Specific Coverage Endorsement, that is, insurance coverage for a specific group of lambs to be marketed/slaughtered at or near the end date of the endorsement. Each Specific Coverage Endorsement, or • policy, is limited to 7,000 head of lambs and no more than 28,000 head per entity may be covered in any crop year (July 1 through June 30).Coverage prices are the prices that can be • insured by a producer. They range from 80 to 95 percent of expected ending values in 5 percent increments.Coverage prices are also used to calculate • the total insured value of the lambs. The premium is due on the day LRP-• Lamb insurance is purchased.Table 1 is a partial replica of LRP-Lamb Ex-pected End Values, Texas Coverage Prices and Rates as posted on December 10, 2007.Example: An operation has 100 head of lambs and expects to market them in 13 weeks at a target average weight of 1.3 cwt, for a total of 130 cwt (100 head times 1.3 cwt). The insured share is 100 percent. The expected ending value (price/cwt) is $111.13 per live cwt (Table 1, column 3). The producer selects a coverage price of $88.90 per cwt (80 percent of projected coverage price; Table 1, line 4, columns 4 and 5) for a 13-week period. For this coverage price the premium rate is 0.00077 per pound or 0.068 per cwt ($88.90 per cwt times 0.00077). The premium subsidy is 13 percent. The premium is calculated as follows:Total end target weight of 130 cwt • multiplied by the coverage price of $88.90 equals $11,557.$11,557 times the insured share of 1.00 • equals an insured value of $11,557.$11,557 times the rate of 0.00077 equals • $8.90 of total premium.$8.90 multiplied by the producer premium • subsidy percentage of 0.13 equals $1.16.Subtracting $1.16 from $8.90 equals the • total producer premium of $7.74 for insuring the price of 100 lambs in this example.Assume that at the end of the 13 weeks the actual ending value is equal to $80 per cwt. Since $80 is less than the coverage price of $88.90, an indemnity is due. Indemnity is calculated by:Subtracting the actual ending value of $80 • from the coverage price of $88.90, which equals $8.90 per cwt.Multiplying 130 cwt by $8.90 per cwt, • which equals $1,157.For more information on coverage prices, rates and actual ending values, go to http:/www3.rma.usda.gov/apps/livestock_reports/. Remem-ber, LRP-Lamb prices, rates and actual ending values are posted only on Mondays. Endorsementlength Crop yearExp. endvalueCoveragepriceCoveragelevelRate Cost perCWT End dateEducational programs of the Texas AgriLife Extension Service are open to all people without regard to race, color, sex, disability, religion, age, or national origin.Issued in furtherance of Cooperative Extension Work in Agriculture and Home Economics, Acts of Congress of May 8, 1914, as amended, and June 30, 1914, in cooperation with the United States Department of Agriculture. Edward G. Smith, Director, Texas AgriLife Extension Service, The Texas A&M System.Produced by AgriLife Communications, The Texas A&M SystemExtension publications can be found on the Web at: http://AgriLifeBookstore.org.Visit Texas AgriLife Extension Service at http://AgriLifeExtension.tamu.edu.Partial funding support has been provided by theTexas Corn Producers, Texas Farm Bureau, andCotton Inc.–Texas State Support Committee. Table 1. Partial replica of LRP-Lamb expected end values, Texas coverage prices and rates, 12/10/07.

Livestock Risk Protection-Lamb: New Insurance Program to Help Ranchers Manage Lamb Price Risk

Texas A&M University

1Livestock Risk Protection-Lamb:  
New Insurance Program to Help Ranchers 
Manage Lamb Price Risk
Risk Management
E-470
RM4-14.0 
09-08
*Professor and Extension Economist–Management, Assistant Professor and Extension 
Economist–Management, Professor and Extension Economist–Management, and Professor 
and Extension Economist–Livestock and Food Product Marketing,The Texas A&M System.
USDA’s Risk Management Agency (RMA) is 
offering a new federally subsidized Livestock 
Risk Protection-Lamb (LRP-Lamb) insurance 
program. The program began in the Fall of 2007 
to help livestock producers manage lamb price 
risk. This insurance program is very similar to 
the LRP insurance for feeder cattle, which has 
been available for 4 years. 
The LRP-Lamb insurance program is de-
signed to insure against unexpected declines 
in lamb market prices. Sheep producers in 27 
states (see Fig. 1) may select from a variety of 
coverage levels and periods of insurance to cor-
respond with general lamb feeding, production 
and marketing practices. 
While the LRP-Lamb program’s price protec-
tion is centered around slaughter lamb prices, 
the program covers both lambs that are sold 
directly off pasture or finished in a feedlot. 
Policies may be purchased weekly (on Monday 
only, 10:00 a.m. through 7:00 p.m. CST) through-
out the year from approved livestock insurance 
agents. Premium rates, coverage prices, and 
actual ending values are posted online weekly.
LRP-Lamb Concepts
The LRP-Lamb insurance contract does not 
guarantee the producer a cash price, but insures 
against a decline in national slaughter lamb 
prices below an established coverage price. 
USDA-RMA uses prices published each Friday 
in the National Weekly Slaughter Sheep report 
at www.ams.usda.gov/mnreports/lm_lm352.txt to 
predict the expected price of lambs 13, 26 and 39 
weeks in the future. If, at the end date of cover-
age, actual ending values based upon the week-
ly average prices for “Formula Live Lambs” are 
less than the selected coverage price, producers 
will have 60 days to file an indemnity claim. 
Coverage is purchased on a specific number of 
head, with a target weight per head identified 
by the producer.
Other LRP-Lamb Requirements
Lamb target weights refer to the average • 
anticipated weights of covered lambs at 
the end of an insurance period. 
Lamb insurance is offered for 13-, 26- and • 
39–week periods (endorsement length). 
Producers are expected to select an 
Jose G. Peña, William J. Thompson, Stan Bevers and David Anderson*
States included in the LRP-Lamb Pilot Program
Figure 1. Livestock Risk Protection-Lamb.
2endorsement length closest to the time 
lambs are to be marketed or slaughtered.
Producers must apply for LRP-Lamb • 
insurance coverage through a crop 
insurance agent who is authorized to 
sell LRP. A Substantial Beneficial Interest 
Reporting Form must be submitted with 
the application to identify any entity 
that has at least a 10 percent share in the 
lambs.
Once an application for coverage is • 
approved, a producer may activate 
coverage at any time by applying for a 
Specific Coverage Endorsement, that is, 
insurance coverage for a specific group of 
lambs to be marketed/slaughtered at or 
near the end date of the endorsement. 
Each Specific Coverage Endorsement, or • 
policy, is limited to 7,000 head of lambs 
and no more than 28,000 head per entity 
may be covered in any crop year (July 1 
through June 30).
Coverage prices are the prices that can be • 
insured by a producer. They range from 
80 to 95 percent of expected ending values 
in 5 percent increments.
Coverage prices are also used to calculate • 
the total insured value of the lambs. 
The premium is due on the day LRP-• 
Lamb insurance is purchased.
Table 1 is a partial replica of LRP-Lamb Ex-
pected End Values, Texas Coverage Prices and 
Rates as posted on December 10, 2007.
Example: An operation has 100 head of lambs 
and expects to market them in 13 weeks at a 
target average weight of 1.3 cwt, for a total of 130 
cwt (100 head times 1.3 cwt). The insured share 
is 100 percent. The expected ending value (price/
cwt) is $111.13 per live cwt (Table 1, column 3). 
The producer selects a coverage price of $88.90 
per cwt (80 percent of projected coverage price; 
Table 1, line 4, columns 4 and 5) for a 13-week 
period. For this coverage price the premium rate 
is 0.00077 per pound or 0.068 per cwt ($88.90 per 
cwt times 0.00077). The premium subsidy is 13 
percent. The premium is calculated as follows:
Total end target weight of 130 cwt • 
multiplied by the coverage price of $88.90 
equals $11,557.
$11,557 times the insured share of 1.00 • 
equals an insured value of $11,557.
$11,557 times the rate of 0.00077 equals • 
$8.90 of total premium.
$8.90 multiplied by the producer premium • 
subsidy percentage of 0.13 equals $1.16.
Subtracting $1.16 from $8.90 equals the • 
total producer premium of $7.74 for 
insuring the price of 100 lambs in this 
example.
Assume that at the end of the 13 weeks the 
actual ending value is equal to $80 per cwt. Since 
$80 is less than the coverage price of $88.90, an 
indemnity is due. Indemnity is calculated by:
Subtracting the actual ending value of $80 • 
from the coverage price of $88.90, which 
equals $8.90 per cwt.
Multiplying 130 cwt by $8.90 per cwt, • 
which equals $1,157.
For more information on coverage prices, rates 
and actual ending values, go to http:/www3.
rma.usda.gov/apps/livestock_reports/. Remem-
ber, LRP-Lamb prices, rates and actual ending 
values are posted only on Mondays. 
Endorsement
length Crop year
Exp. end
value
Coverage
price
Coverage
level
Rate Cost perCWT End date
Educational programs of the Texas AgriLife Extension Service are open to all people without regard to race, color, sex, 
disability, religion, age, or national origin.
Issued in furtherance of Cooperative Extension Work in Agriculture and Home Economics, Acts of Congress of May 
8, 1914, as amended, and June 30, 1914, in cooperation with the United States Department of Agriculture. Edward G. 
Smith, Director, Texas AgriLife Extension Service, The Texas A&M System.
Produced by AgriLife Communications, The Texas A&M System
Extension publications can be found on the Web at: http://AgriLifeBookstore.org.
Visit Texas AgriLife Extension Service at http://AgriLifeExtension.tamu.edu.
Partial funding support has been provided by the
Texas Corn Producers, Texas Farm Bureau, and
Cotton Inc.–Texas State Support Committee. 
Table 1. Partial replica of LRP-Lamb expected end values, Texas coverage prices and rates, 12/10/07.


English

http://oaktrust.library.tamu.edu/bitstream/handle/1969.1/87541/pdf_2588.pdf?sequence=1&isAllowed=y

Livestock Risk Protection-Lamb: New Insurance Program to Help Ranchers Manage Lamb Price Risk

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Texas A&M Repository

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Livestock Risk Protection-Lamb: New Insurance Program to Help Ranchers Manage Lamb Price Risk

Abstract

Similar works

Full text

Available Versions

Texas A&amp;M Repository

Texas A&M University

Texas A&M Repository