LRP and DRP are insurance products that protect producers from unexpected declines in price. It can be purchased on Fed Cattle, Feeder Cattle, Swine, and dairy milk. They are affordable ways for producers to protect their bottom lines in the event of a market decline.
LRP and DRP insurance is available to anyone who has ownership in the livestock or milk. You must also be registered as conservation compliant with your USDA office by completing the AD-1026 form.
Applying for LRP/DRP and Purchasing Coverage Endorsements
To begin the process, a producer must fill out an application with a licensed agent to be submitted to an insurance company and approved for eligibility. Once an insured’s application is approved, the application is continuous until cancelled by the insured or insurance company.
Once your application is submitted and approved, an insured then purchases a Specific Coverage Endorsement (SCE) for LRP or Quarterly Coverage Endorsement (QCE) for DRP. These endorsements to a policy are what provide coverage for the period requested by the producer. For LRP these endorsements can range from 13 to 52 weeks. DRP endorsements are offered on a milk category or component pricing basis. Endorsement offerings for LRP and DRP are offered daily.
Endorsements are subject to limitations. For cattle, you are limited to 6000 head per endorsement, and 12,000 head annually. For swine, you are limited to 40,000 head per endorsement and 150,000 annually.
Coverage is determined by selecting a coverage level (70-100% for LRP and up to 95% for DRP) of the expected ending price. Endorsements must be submitted and completed by 9:00 am the following business day, including Saturdays. Only DRP endorsement purchases are allowed on Sundays. No endorsement purchases are available on Mondays. Premiums for all products are due at the end of your coverage period.
Benefits
- Can be purchased AFTER the market has already opened from the prior day’s close.
- Setting a floor: you are establishing your bottom line; if the ending value falls below your coverage price, you will have a claim.
- No margin calls: if the ending value is higher than your coverage price, you are not responsible for margin calls, only the premium owed—which is at the END of the coverage period, not before.
- Subsidized: subsidies are offered ranging from 35-55%, depending on the coverage level chosen, making them more competitive than buying traditional options.
- The end value settles into cash markets, which gives you basis protection.
Rules
- LRP producers must be able to prove ownership of the livestock up to 60 days prior to the SCE ending date (i.e.- if your ending date is July 1st, you must be able to prove you had ownership of the covered livestock until at least April 2nd); examples of acceptable proof of ownership are sales receipts or kill tickets
- DRP actual milk production must be within 85% of the declared production for the quarter selected.
- CANNOT have 2 UDSA insurance products on the livestock at one time for LRP.
- Must notify the company of death of covered livestock within 72 hours of when you learned of the death.
- Must file a claim within 60 days of the endorsement ending date.