Insurance Reducing Risk in Lamb Sales
The Livestock Risk Protection for Lambs (Lamb LRP) insurance program is taking some of the risk out of lamb sales.
“Lamb producers used to have to take whatever the market price was on sale day,” says Karl Hoppe, the North Dakota State University Extension Service’s area livestock systems specialist at the Carrington Research Extension Center.
Lamb producers must submit a one-time application for the insurance. Then they may purchase a specific coverage endorsement (SCE) for any number of lambs between 1 and 2,000.
Producers can buy multiple SCEs as long as the total number of lambs for which the price is being protected doesn’t exceed the number of lambs they own.
Producers can’t sell the lambs any earlier than 30 days before the SCE matures or it will be invalid. In addition, once the SCE has matured, producers can purchase another SCE on the same lambs, if applicable. Lamb LRP is sold for three different maturity dates: 13, 26 and 39 weeks.
“You don’t actually sell the lambs,” explains Travis Hoffman, Extension sheep specialist for NDSU and the University of Minnesota. “You put in a floor price, and if the market price drops below the floor price when the insurance matures, the insurance policy pays you the difference.
“You sell the lambs like you always have,” he says. “You just need to own the lambs when the policy is purchased and continue to own the lambs up until 30 days before the ending date of the contract.”
For example, a producer has 45 lambs to market in December 2017. The producer purchased Lamb LRP on June 19 for a Dec. 18 policy end date. This producer can sell the lambs any time after Nov. 18.
The expected end price for Dec. 18 is $175.41. Lamb LRP has four pricing options, with the premium increasing as the coverage increases: 95 percent coverage at $166.64 for about $7.18 per hundredweight (cwt); 90 percent at $157.87 for about $4.20 per cwt; 85 percent at $150 for about $2.26 cwt; or 80 percent at $140.33 for about $1.11 per cwt.
The producer selected the 95 percent coverage for lambs weighing 110 pounds. The unsubsidized premium cost would be 110 pounds at 7.18 per cwt, or $7.90 per lamb. However, the Risk Management Agency subsidizes the LRP coverage price to decrease the cost to the lamb producer, so the 26-week subsidy is 35 percent and the net cost of the insurance is $5.14 per head.
The lamb value then is set at $183.30 per head. If the market declines, then the producer will receive a payment based on national prices, not the producer’s actual selling price.
LRP is available every Monday between 10 a.m. and 7 p.m. Central time, except when Monday is a federal holiday; then it’s available on Tuesday. Visit https://www.rma.usda.gov/tools/livestock.html for LRP coverage prices.
The Federal Crop Insurance Corp. subsidizes Lamb LRP. It first was available in 2007 but was discontinued later. It became available again in April though participating crop insurance agents. Visit http://prodwebnlb.rma.usda.gov/apps/AgentLocator for a list of approved agents.
Lamb LRP helps the sheep industry by providing sheep producers with the option to manage the extremes in market lamb prices, according to Burdell Johnson, who manages the Food & Fiber Risk Managers insurance agency in Tuttle. The agency is a subsidiary of the American Sheep Industry Association.
“High prices most likely will not sustain through the fall, so providing an insurance for your future marketing may be worth minimizing the risk of feeding lambs to harvest weights,” Hoffman says. “The market is volatile, and this opportunity allows producers to minimize marketing risks.”
Source: North Dakota State University