1. Livestock Risk Protection (LRP) uCoverage for hogs, fed cattle and feeder cattle u70% to 95% guarantees available, based on CME futures prices. uCoverage is available for up to 26 weeks out for hogs and 52 for cattle.

2. Livestock Risk Protection uGuarantees available are posted at: www.rma.usda.gov/tools/ www.rma.usda.gov/tools/ uPosted after the CME closes each day until 9:00 am central time the next working day. uAssures that guarantees reflect the most recent market movements.

3. Size of Coverage Futures and options have fixed contract sizes –Hogs: 400 cwt. or about 150 head –Fed cattle: 400 cwt. or about 32 head –Feeder cattle: 500 cwt., 60-100 head uLRP can be purchased for any number of head or weight

4. Some Risks Remain uLRP, LGM do not insure against production risks uFutures prices and cash index prices may differ from local cash prices (basis risk) uSelling weights and dates may differ from the guarantees

5. Expiration Date of Coverage uLRP ending date is fixed. Price may change after date of sale. uHedge or options can be lifted at any time before the contract expires.

6. Who can benefit from LGM/LRP? uProducers who depend on the daily cash market or a formula related to it. uProducers with low cash reserves. uSmaller producers who do not have the volume to use futures contracts or put options. uProducers who prefer insurance to the futures market. No margin account.

7. LRP Analyzer uCovers swine, fed cattle, feeders uCompares net revenue distribution –No risk protection –LRP –Hedge –Put options

8. Case Example uSmall cow herd producer will have 62 head of 650 pound steer calves to sell in 4 months. uWhat price will LRP lock in? uHow much will it cost? uHow does LRP compare to futures?

11. Livestock Gross Margin uCattle –Calves –Yearlings uHogs –Farrow to finish –Finishing feeder pig –Finishing SEW pig

12. Livestock Gross Margin Insures a “margin” between revenue and cost of major inputs Hogs Value of hog – corn and SBM costs Cattle Value of cattle – feeder cattle and corn Protects against decreases in cattle/hog prices increases in input costs

13. LGM Hogs uFarrow to Finish option uGross margin per hog t = –2.5*0.74*LeanHog Price t –- 13.22 bu. * Corn Price t -3 –- (188.52 lb./2000 lb.) * SoyMeal Price t -3 uFinish Only option uGross margin per hog t = –2.5*0.74*Lean Hog Price t –- 10.19 bu. * Corn Price t -2 –- (147.31 lb./2000 lb.) * SoyMeal Price t -2

14. LGM-Cattle uUses futures markets to lock in the average expected gross margin for fed cattle to be sold in each of the next ten months uProtects against decreases in live cattle prices increases in feeder cattle prices and increases in feed costs

15. LGM-Cattle Yearling GM = 12.5 x Basis adjusted LC futures - 7.5 x Basis adjusted FC futures - 57.5 x Basis adjusted Corn futures Calf GM = 11.5 x Basis adjusted LC futures - 5.5 x Basis adjusted FC futures - 55.5 x Basis adjusted Corn futures

16. Learn More About Risk Tools uLivestock Revenue Protection uLivestock Gross Margin uhttp://www.rma.usda.gov/livestock/http://www.rma.usda.gov/livestock/ –Factsheets –Premium calculator uLivestock Futures and Options uHistoric basis patterns uwww.extension.iastate.edu/agdmwww.extension.iastate.edu/agdm –Decision file B1-50