2. Livestock Insurance: Overview
Livestock Risk Protection (feeder cattle, fed cattle, same)
Livestock Risk Protection (LRP) for swine
Livestock Risk Protection (LRP) for slaughter lambs
The insurable types and weights of feeder cattle under livestock insurance
Insurance against price changes
Indemnity calculations
Speaker Notes:
There are several types of insurance that handle production and revenue risks for most crops grown in Wyoming. Now let’s look at a price insurance product available for livestock producers. Feeder cattle, fed cattle, swine and slaughter lambs can all be covered by insurance policies in Wyoming. We’re going to take a look at highlights of the livestock risk protection (LRP) insurance primarily as it relates to feeder cattle, fed cattle, and swine.

3. Livestock Insurance: LRP for Swine Overview
History
Geographic Coverage
LRP-Swine Attributes
Application
Offsetting Transaction
Speaker Notes:
LRP-Swine, first offered in 2001, is a price risk management tool that provides slaughter hog producers downside price protection against a decline in national slaughter hog prices. LRP-Swine is now available in all Wyoming counties and all counties in 36 other states. Because of limits on the number of slaughter hogs that can be covered by endorsement and yearly, the product may be most useful to low volume operations that do not contract with an integrator for price. LRP-Swine is applicable to slaughter hogs to be marketed at slaughter weights between 203 and 304 pounds, live weight. Although this insurance protects hog producers against a decline in national slaughter hog prices below an established coverage price, it does not cover sickness or death loss or insure against possible rising feed costs. Producers remain subject to basis price risk, which is the difference between a producer's actual market sales price and the Chicago Mercantile Exchange price used to specify the actual ending value against which this insurance product is settled. Producers need to work with the crop insurance agent to make application for LRP-Swine, establish beneficial interest and file a specific coverage endorsement for each group of slaughter hogs to be insured. Limits are 10,000 slaughter hogs per endorsement and 32,000 head per producer per year. Producers are not allowed to take offsetting positions in the commodity futures or options markets so as to convert the premium subsidy on this insurance to their personal use.

4. Livestock Insurance: LRP for Swine Basics
Target Weights
Endorsement Length
Expected Ending Value
Coverage Prices
Premium Rate
Actual Ending Value
Current and Archived Information
Speaker Notes:
Here are several terms that are specific to LRP-Swine. Let’s go through each together:
Target Weights: Target weights are the anticipated lean weight of market hogs, expressed in hundredweight, for market hogs and vary from 1.5 to 2.25 hundredweight. A lean weight conversion factor of 0.74 is used to convert live hogs to lean weight. So a 250 pound live weight hog is 185 pounds on a lean weight basis (250 pounds x 0.74 = 185 pounds, lean weight).
Endorsement Length: LRP-Swine insurance is offered in 13, 17, 21 and 26 week endorsement lengths. Producers are to endorsement length closest to the sales date of the market hogs.
Expected Ending Value: Expected ending values reflect lean weight prices for market hogs that are expected to occur at the end of the endorsement period.
Coverage Prices: These are the prices per hundredweight lean weight within an endorsement length at which a producer may choose to insure. Concurrent with a producer's choice of a coverage price the producer has selected a coverage level, the portion of the expected ending value represented by the coverage price selected.
Premium Rate: For each coverage level within an endorsement length there is a “rate”, a premium rate specified. Furthermore, the premium subsidy rate for LRP-Swine is 13 percent, irrespective of the coverage level.
Actual Ending Value: Actual ending value for swine is the weighted average cash price for lean hogs, using the end date and the day preceding the end date of the insurance period. The price series used to calculate an actual ending value is the same series used to settle the lean hog futures contract on the Chicago Mercantile Exchange (CME).
Current and Archived Information: Information on expected ending values, coverage prices and levels, premium rates and ending values for each business day may be located at: At that site, look for Browse by Subject and select livestock and locate Livestock Risk Protection and select for swine.

5. Livestock Insurance: LRP for Swine Example
Speaker Notes:
Now let's look at George's slaughter hog operation for an example transaction.
On October 6th he had 5,000 head of hogs that he expects to reach a target weight of 185 pounds lean weight per head when he markets them in early January. He determines that a 13 week endorsement period is appropriate for group of slaughter hogs and selects a coverage price of $ per hundredweight which is percent of the expected ending value of $ per hundredweight.
He had previously made application with his insurance agent and had established his beneficial interest in these slaughter hogs at 100 percent. He works with his agent to complete a specific coverage endorsement for this group of market hogs.

6. Livestock Insurance: LRP for Swine Premium Calculations
Speaker Notes:
George works with his insurance agent to determine the premium that he will have to pay, up-front, to buy this price risk insurance. They establish the insured value of this group of slaughter hogs at $569,060 by multiplying the 5,000 head times 1.85 hundredweight lean weight per head times $ per hundredweight times 1.000, reflecting his 100 percent share in these hogs. The premium rate is specified on the web site for slaughter hogs on the October 6 page for LRP-Swine in the 13 week endorsement period with a $ per hundredweight coverage price. Multiplying the $569,060 insured value times the premium rate yields a total premium of $16,668. Subtracting from this total premium the 13 percent premium subsidy of $2,167 provides George with his $14,501 premium.

7. Livestock Insurance: LRP for Swine Example
A producer will be paid an indemnity when the actual ending value of the market hogs (based on national cash prices) is less than the coverage price selected by the producer
Note that the price at which the producer sells his market hogs does not enter this calculation
Speaker Notes:
A producer carrying LRP-Swine coverage will be indemnified when the actual ending value for the slaughter hogs determined as a cash price for settling a specific CME contract is less than the coverage price selected by the producer. Producers must remember that the price at which they sell their slaughter hogs does not enter into these calculations.
The indemnity is determined by multiplying the number of head by the average target weight per head times the difference in the coverage price less the actual ending value times the producer's ownership share in the slaughter hogs.
Indemnity =
[Number of Head Insured x Target Weight, in lean weight x (Coverage Price - Actual Ending Value)] x Insured Share

8. Livestock Insurance: LRP for Swine Example
George actually marketed his 5,000 head of market hogs on January 2
The actual ending value for the 13 week endorsement period he selected, posted on January 5, indicated an actual ending value of $ per hundredweight for the market hogs in which he 100 percent ownership share
Will George receive an indemnity for his market hogs?
Let’s look at the calculations
Speaker Notes:
George marketed his 5,000 head of slaughter hogs in early January. The actual ending value for these hogs was $ per hundredweight. Will George receive an indemnity for his market hogs? Let’s go through the calculations together.

9. Livestock Insurance: LRP for Swine Example
Speaker Notes:
Yes. George will receive an insurance indemnity for this 5,000 head because the actual ending value is less than the coverage price at which he insured. George will receive an indemnity because the actual ending value of $ was less than the $ per hundredweight coverage price at which he insured in early October. The indemnity calculation would have been 5,000 head times 1.85 hundredweight in lean weight per head times $ less $ per hundredweight times George's ownership share of 1.00, for a total indemnity of $28,120.

10. Livestock Insurance: LRP for Swine Summary
Swine producers may use LRP-Swine to protect against a decline in the national price of slaughter hogs
This product does not address other risks such as animal sickness, death loss, increases in feed costs and price basis risk
Speaker Notes:
In this section of Livestock Insurance we have learned, LRP-Swine is available for slaughter hog producers in all Wyoming counties to insure against national downward price movements for slaughter hogs. This product does address risks such as sickness and death loss, and perhaps most importantly, basis price risk. There are endorsement limits of 10,000 head and crop year limits of 32,000 head of slaughter hogs that may be covered under LRP-Swine.