Growing up on a ranch, Rich Porter knew the risk that comes with production agriculture. He wanted no part of it. He earned degrees in chemical engineering and law, intent on building his own path.
Porter’s dad had other plans and more than once asked him to join the family cattle business. At the age of 29, Porter returned home – just in time to experience the economic uncertainty and challenges of the 1980s. In his 43 years in the cattle industry, risk management has been a constant.
“My dad always said it doesn’t matter how successful you are at the top, it’s how well you can sustain at the bottom.”
Livestock Risk Protection (LRP) is part of Porter’s overall strategy for managing risk on his operation. He began buying LRP shortly after it was introduced in 2002. When the federal government introduced changes a couple years ago to make LRP more affordable and useful to cattle and hog operators, he really leaned into the product, embracing the peace of mind that comes with knowing his inventory of cattle is protected.
Porter turns about 7,000 cattle a year. They come into his operation weighing roughly 350 pounds and, depending on the season, feed on grass or corn silage supplemented with distillers in the feedlot. After about eight months, they are sold as feeders at 850 to 900 pounds.
LRP, Porter said, “allows me to have confidence knowing that I have significant price protection.”
Taking risk off the table
Porter uses LRP in place of puts, both because he finds it cheaper than puts and because he does not need to wait for a fill. Typically, he said, he opts for the highest coverage level, likening it to buying an at-the-money put.
“With live cattle puts on the Chicago Mercantile Exchange, you can see a price. But that does not mean you can buy it for that price because they’re thinly traded. It may be two or three days before you would get the fill, if at all.”
Porter is an advocate for LRP, saying it does for livestock producers what crop insurance does for corn and soybean growers.
“The government provides it to producers like me, and so I try to use it in the mode of which it was designed – to take risk off the table for my operation. Essentially, I probably keep close to 100% of my cattle with price protection from the LRP.”
He ticks off the benefits of the program: “One, you should get a return for it. Two, it will pay out when you most need it.”
Porter also likes the simplicity of the program. “Once you’ve signed up and have done one or two policies with a crop insurance agent, it is very easy to purchase additional policies. Everything is just a straight-up cowboy deal.”
Livestock Risk Protection (LRP) is a federally subsidized risk management program designed to insure against a decline in livestock market prices for fed cattle, feeder cattle and swine. Premium subsidies are available based on coverage level. Premiums are due at the end of the insurance period.
Key policy benefits include:
- LRP sets a price floor but leaves upward price potential open.
- Indemnity is decided based on area pricing, not the producer’s price. Actual ending values are reflective of cash marketplace averages.
- Coverage is offered on a per-head basis and is available on a variety of livestock, including unborn cattle and swine.
- Coverage length varies based on animal and producer need. Fed and feeder cattle: 13, 17, 21, 26, 30, 34, 39, 43, 47 or 52 weeks. Swine: 13, 17, 26, 30, 34, 39, 43, 47 or 52 weeks.
- Producers are able to market livestock up to 60 days prior to the end of the insurance period.