Breaking Down the LRP Settlement Process
Livestock Risk Protection (LRP) is a USDA-administered risk management solution designed to help you protect your bottom line against today’s volatile market. Unlike other insurance plans, LRP is customizable to fit your needs, so you can worry less about sudden market changes and more about getting your herd ready to go to market.
We’ve discussed how LRP can benefit your operation, but what happens after you’ve sold your livestock? Let’s briefly recap what LRP is and take an in-depth look at the LRP settlement process.
What is LRP?
For many producers, navigating today’s market can be extremely difficult. It’s impossible to predict what tomorrow’s prices may look like, as many risks can cause a sudden downturn without any previous warning. However, an unexpected drop in cattle prices can impact your bottom line and shrink your profits.
Farmers who sell during a downturn and miss out on key profits may be forced to sell their land to make up the difference or give up farming entirely.
LRP puts you back in the driver’s seat of your marketing decisions, so you aren’t forced to settle for less. LRP sets a price floor, so you’re guaranteed to receive a minimum price for your livestock when it’s time to sell. Regardless of whether the market takes a turn for the worse, you’re protected against prices, but you can still benefit when prices are up.
What happens when your marketing date arrives, and you’ve sold your livestock? What can you expect from the settlement process?
Breaking Down the LRP Settlement Process
After you’ve sold your herd, your coverage period ends and the settlement process begins.
Depending on the market price that you sell your livestock for when you go to market, you may be entitled to an indemnity. Simply put, an indemnity is a payment that covers the difference between your coverage price and the end price you receive for your livestock. If you sell your livestock for a price lower than your insured price, you will receive an indemnity that covers the difference.
Let’s look at a brief example:
- A cattle producer purchases an LRP policy for an insured value of $100,000 with a $1,000 premium. When his marketing date arrives, he sells his cattle for an end value of $95,000. Because his end price is lower than his price guarantee with LRP, he will receive an indemnity that covers the difference minus his premium. He’ll receive a net indemnity of $4,000.
- Alternatively, imagine that the same producer sells his cattle for $110,000 when he goes to market. Since he received an end value for his cattle that was higher than his covered price, he will not receive an indemnity. Instead, he’ll pay his premium of $1,000.
When the market is down, LRP helps you protect your bottom line, but the ceiling is wide open in times when prices are on the rise. Without his LRP coverage, the producer could have lost out on essential profits to keep his operation running.
Getting Started With LRP
Managing risks in today’s market can often feel impossible, but it doesn’t have to be. LRP is accessible for producers of all sizes and production stages, so you can rest easier knowing that your profits are protected against unexpected market price drops.
LRP offers flexible coverage options so that you can tailor an individualized policy:
- Insure by the head. LRP protects your herd, whether it’s 10 cattle or 10,000.
- Choose your target weight. Set your target weight between 100 and 599 pounds or between 600 and 1000 pounds.
Select your market date. LRP offers a wide range of endorsement periods, so you can find the one that aligns with your market cycle. Policies can last as few as 13 weeks or up to 52 weeks.
In addition, when you purchase an LRP policy, there are no shocks to your cash flow, and premiums are due after you take your livestock to market.
It’s never too early to start securing your operation against today’s market. We’re here to help you create a one-of-a-kind risk management policy. Request a free LRP quote today to create a safety net for your investment.