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Disclaimer

Disclaimer. This presentation is for informational purposes only and does not supersede any information found in any Livestock Risk Protection contract document or approved procedures.

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  1. Disclaimer This presentation is for informational purposes only and does not supersede any information found in any Livestock Risk Protection contract document or approved procedures

  2. The Agricultural Risk Protection Act of 2000 (ARPA) allowed for development and sale of federally reinsured livestock insurance plans

  3. LRP developed under 508(h) of the Federal Crop Insurance Act and currently owned by; Applied Analytics Group, Inc. 621 W. Barry Suite 302 Chicago IL 60657 LRP@apldag.com

  4. Underwriting Capacity • Livestock funds limited by ARPA • “Real Time” Underwriting via Risk Management Agency website • Agents can’t bind coverage • Must have approval # prior to confirming sale • Approval # indicates remaining capacity

  5. LRP Flexibility • Timing of purchase • Coverage available throughout the year • Price to be covered • Multiple coverage prices • Select endorsement period • 13 to 52 weeks available • Number of head insured • From 1 head to endorsement and policy limits

  6. FCIC Board approved implementation of LRP-Feeder Cattle and LRP-Fed Cattle on December 18, 2002 Sales began June 9, 2003

  7. LRP-Feeder Cattle Availability

  8. LRP Fed Cattle Availability Available in all counties of eligible states

  9. Who Should Enroll(Submit Application) • All producers with eligible livestock located in LRP states • Enrollment gives the right but not obligation to purchase coverage • No cost to enroll

  10. LRP Application(Enrollment) • Establish eligibility • Right but not the obligation • Purchase specific commodity endorsements (SCE) • Application by entity & State • Individual • Partnership; Etc. • Physical location of livestock at time application submitted.

  11. Specific Coverage Endorsement (SCE) • Initiates coverage on named livestock • Attaches to LRP policy • Multiple endorsements allowed subject to policy limitations

  12. Endorsement Length • All lengths not available every day • Selected when endorsement bought • Choose available term ending closest to marketing

  13. Endorsement Lengths • Feeder cattle • 13, 17, 21, 26, 30, 34, 39, 43, 47, or 52 weeks • 13 & 17 weeks beginning in 2004 • Fed Cattle • 13, 17, 21, 26, 30, 34, 39, 43, 47 or 52 weeks

  14. Target Weight • Anticipated weight at end of endorsement period • Producer estimate at purchase • Used in premium and claim calculations

  15. LRP - Feeder Cattle(Beginning Spring, 2004) • Calves, steers and heifers. • Including predominately dairy and Brahman breeds. • Target weights up to 900 lbs.

  16. Insurable Fed Cattle • Grade Select or higher • Yield Grade 1 to 3 • Market for slaughter at 10 to 14 cwt at end of insurance period

  17. Covered Peril • Price Decline Only! • Price decrease during term of endorsement • Actual Ending Value • Policy end date • Less than coverage price • Selected when endorsement bought

  18. Perils Not Covered • Death, disease • Quarantine, seizure, forced destruction • Marketing decisions • Local price not guaranteed • Any cause not in policy

  19. Level of policy protection Multiple prices available daily Quoted in $ per cwt Published daily on RMA website Selected when endorsement purchased Coverage Price

  20. Actual Ending ValueFeeder Cattle • Calculated by Chicago Mercantile Exchange (CME) • Reported as CME Feeder Cattle Reported Index • Factored for type & weight of livestock • On end date of endorsement or day prior

  21. Actual Ending ValueFed Cattle • AMS 5 Area Weighted Weekly Price • www.ams.usda.gov/mnreports/lm_ct150.txt • Price Series • Live Basis Sales, Steers, 35-65% Choice category • Report for week containing policy end date or prior week

  22. Annual Policy Limits(July 1 to June 30) • Feeder Cattle • Not more than 1,000 head per endorsement • Not more than 2,000 head per crop year • Fed Cattle • Not more than 2,000 head per endorsement • Not more than 4,000 head per crop year

  23. Annual Policy Limits • Individual’s interest in multiple entities • % interest times # head • Not exceed per crop year • 2,000 head feeder cattle • 4,000 head fed cattle

  24. Coverage Availability • Coverage information: • On RMA web site; • Applicable only for date of sale; and, • Available 7 a.m. to 8 p.m. Central Time weekdays

  25. Coverage Availability • Coverage NOT available: • On weekends or federal holidays; Or, • If web site or premium calculator not operational; • Coverage MAY NOT be available if: • Any required data for establishing coverage prices or rates not available; Or, • Futures not trading at end of day • Any other reason in policy

  26. Offsetting Transactions • Any transaction making subsidy available for immediate use • Ex.; Writing a CME put option • Ex.; Buying (long position) a CME futures contract • Prohibited!!! • Denial of indemnity • Premium owed

  27. Policy Assignment • LRP indemnity may be assigned • Lender • Other creditor • Must be approved by company • Establishes collateral value

  28. 72 Hour Notice • Government authority order • Seizure • Quarantine • Forced destruction • Not deliverable due to • Death • Disease • Notify agent within 72 hours of learning of the event

  29. Why Give 72 Hour Notice • If notice given to agent • Affected livestock included if indemnity payable on endorsement • If notice notgiven • Affected livestock excluded from indemnity calculation • No premium refund

  30. Premium • Premium quotes on RMA premium calculator. • Premium must be paid at LRP purchase • Coverage prices, levels, and rates: • Available on RMA website; • Change daily; And, • Referred to at time of sale for each endorsement.

  31. # Head * target weight; 100 hd. * 7.50 cwt = 750 cwt. #1 * Coverage Price; 750 cwt. * $75 = $56,250 #2 * insured share; $56,250 * 100% = $56,250 #3 * premium rate; $56,250 * 0.013990 = $787 #4 * 0.13 Premium Subsidy; $787 * 0.13 = $102 #4 minus #5 $787 - $102 = $685 Producer Premium Premium Example

  32. LRP Indemnity • Indemnity payable when • Actual ending value • On policy end date • Less than coverage price • When endorsement purchased

  33. Indemnity Example • # Head * target weight; 100 hd. * 7.50 cwt = 750 cwt. • Subtract Actual Ending Value from Coverage Price; $75.00 – $70.00 = $5.00 • #1 * #2; And 750 cwt * $5.00 = $3,750 • #3 * insured share. $3,750 * 1.000 = $3,750 indemnity

  34. LRP Websites General LRP Information (including rates & prices) • http://www.rma.usda.gov/policies/2004LRP.html Premium Calculator • http://www3.rma.usda.gov/apps/premcalc/ Livestock Agent Locator • http://www3.rma.usda.gov/apps/agentslpi/ CME Feeder Cattle Reported Index • http://www.cme.com/dta/hist/cash_settled_commodity_prices

  35. LRP vs Futures and Options

  36. How to Participate in LRP • Producers apply for an LRP policy with their insurance agent. • The application is submitted to approved insurance provider (AIP). • AIP assigns a policy number. • Producer does not yet have LRP coverage. • Right but not obligation to purchase Specific Coverage Endorsement(s).

  37. How to Participate in LRP • Purchase Specific Coverage Endorsement. • Estimate target weight per head. • Select coverage price & endorsement length. • Pay premium. • Agent receives RMA approval number. • Endorsement in effect upon receipt of RMA approval number.

  38. Final Questions ??

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