Agricultural Economics Department
Date of this Version
7-21-2021
Abstract
Market uncertainties pose a significant risk to cattle producers, who have a substantial amount of money invested in breeding livestock, land, and other infrastructure. Live-stock Risk Protection (LRP) insurance became available in the early 2000s from the USDA Risk Management Agency to provide cattle and swine producers with a simple price risk management tool to protect against unexpected down-swings in the national market price. LRP is a single-peril insurance product that provides an indemnity to insured producers if a national price index falls below a selected coverage price on the end date of the policy. LRP insurance functions like a put option in that it creates a floor on the national selling price at a future point in time while still allowing the producer to benefit from price increases.
Comments
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