Livestock owners have a new tool to manage price risk in the form of subsidized Livestock Risk Protection contracts now available through the U.S. Department of Agriculture's Risk Management Agency.

The agency, best known for its crop insurance instruments, made LRP contracts available on feeder cattle in Kansas as well as Colorado, Iowa, Nebraska, Nevada, Oklahoma, South Dakota, Texas, Utah, and Wyoming, said Art Barnaby, agricultural economist with Kansas State University Research and Extension.

Fed cattle contracts are available only in Iowa, Illinois and Nebraska. "Because eligibility is determined by the location where the cattle are being fed, it is possible for Kansas producers to buy a fed cattle contract if they are feeding the cattle in a Nebraska feedlot," he said.

Barnaby, whose research was the basis for the privately-developed Crop Revenue Coverage, explained that the new livestock contract does not guarantee the producer a cash price. Rather it's a single peril risk contract - effectively an off board price derivative, but for legal reasons is referred to as an insurance product.

"This contract may be very attractive to certain producers over a CME (Chicago Mercantile Exchange) feeder cattle put contract," he said. "Producers may buy LRP only on the number of head they actually own and that may be fewer than would be required for a CME contract."

He believes cattle owners should be aware of details of the LRP contract including:

• Producers must submit an application for an LRP contract. Once the application has been accepted, the producer must submit a specific coverage endorsement (SCE).
  
  
• The LRP contract receives a 13 percent premium subsidy. The administrative and commission expenses are also paid by a separate subsidy.
  
  "In a private insurance market, one would not receive any premium subsidy and the purchaser would have to pay the administrative and operating costs of the contract," Barnaby said.
  
  
• Producers must identify the number of feeder steers that are expected to be ready for market at 650 to 900 pounds. (Currently, the LRP is not available on heifers or breeds containing significant amounts of Brahma or dairy genetics.) The producer then chooses the appropriate insurance period to reach the target weight ranging from 21 to 30 weeks.
  
  
• The producer selects a coverage price for the period of the policy. The insured value will equal the number of head times the target weight times the coverage price times the ownership share. The total premium will equal the insured value times the rate. The 13 percent subsidy is then subtracted.
  
  
• The feeder cattle livestock risk protection (LRP) contract is limited to 2,000 head per crop year (July 1-June 30) and 1,000 head per specific coverage endorsement (SCE). For those in states where fed cattle contracts can be written, that contract is limited to 2,000 head per SCE although one may purchase an SCE with fewer head and a maximum of 4,000 head per crop year, the economist said.
  
  
• The length of the LRP for SCE feeder cattle coverages has been approved for 30 day increments from 13 to 52 weeks but only limited number of weeks are currently being offered.