Protect high cattle prices with risk protection

Beef Cattle prices can be severely impacted by events that occur in one day or over time. In 2019, a fire at a large packing plant severely reduced harvest capabilities in this country. That single event drove prices of feeder cattle and market ready cattle down over the next several months. In 2020, many packing plants were shut down over various periods of time due to workers contracting COVID-19 and drove cattle prices lower. In both years, cattle producers sold both feeder cattle and market ready cattle at prices lower than expected.

In today’s market, beef cattle prices are at historically high levels. Beef cattle producers have the opportunity to protect themselves from falling cattle prices by purchasing Livestock Risk Protection (LRP) insurance. The LRP program is implemented through the USDA Risk Management Agency (RMA). The RMA has implemented a market price insurance program since 2004. Farm business management educators and specialists at Michigan State University Extension recommend developing marketing plans and developing market risk strategies. Strategies can often include market price protection programs like LRP.

Cattle producers who take the opportunity to obtain market price protection will frequently realize more income during times of falling cattle prices. The Livestock Risk Protection program (LRP) allows producers to purchase market price protection insurance against falling markets.

Through LRP, producers can purchase market protection from insurance agents in a similar manner as buying crop insurance. Agents selling crop insurance frequently sell LRP policies. The LRP works similarly to purchasing put options setting a floor on the market price; however, LRP like crop insurance is government subsidized. The subsidy has increased significantly over the past couple years and has made purchasing these policies much more inviting. The actual LRP policy is insurance against cattle market prices going lower.