As a cattle operator, Tyler Petrak naturally wants today’s strong prices to continue. Realistically, he knows they will come down, and possibly, he said, sooner than some might expect.
“If you look at what affects cattle and the cattle business, I would agree, we should have higher prices,” Petrak said. “But there are so many entities out there – foreign and domestic – pulling on the industry one way or another that the uncertainty is probably at the highest it has been in a while.”
Livestock Risk Protection has allowed him to lock in today’s high prices to manage the uncertainty and ensure he can cover his bills. Available on a per-head basis, producers can choose a variety of coverage levels and insurance periods to protect against a decline in livestock market price.
“This is the easiest and best opportunity to at least set a bottom for your price, for your income,” Petrak said.
Dan Rasmussen, another South Dakota rancher, bought LRP for the first time in 2023. This year, he has insured 800 yearlings, guaranteeing a high floor price during this year’s market uptick.
“That’s a very good price that works for us financially,” Rasmussen said. “It works in our cash flow, and that’s what we’re after – a guarantee against the possibility of this market going down, which we know it’s going to do. It’s just a matter of when.”
While LRP is federally subsidized, it isn’t cheap, Petrak noted. “But if you can lock in your income months, if not a year away, then you have some security on borrowing power and just general finances.”
Petrak also trades on the Chicago Mercantile Exchange. By comparison, LRP “is so much simpler and easier. You don’t have to come up with a margin call or a payment of some sort on your trade until it’s all done. At 8% interest today, that’s a fair amount.”
Rasmussen is still learning how LRP might fit into his risk management and marketing plans. The LRP option helped him feel comfortable buying calves in this market.
“I purchased 400 yearlings this winter and these are record prices. We know the markets are volatile and they can go down. I don’t think I would have been able to buy as many if I didn’t have a way to protect them,” Rasmussen said. “I could have done it on the Chicago Mercantile Exchange like I have in the past, so there are options. This insurance gave me the confidence, or the actual ability, to buy these calves that have a profit margin even if the market goes down.”
Rasmussen, a ranch consultant, was introduced to LRP by several of his young clients. A rancher can afford maybe one big mistake during a career, but not two, Rasmussen said. When you are young, it’s particularly tough to come back from a bad year. His young clients are using LRP to protect and build their businesses.
“We aren’t boom or bust people,” Rasmussen said. “The way we stay in business is we move ahead a little bit every year, and after 10 or 15 years, it looks pretty good.”
Petrak’s family is in growth mode to make room for the next generation. Insuring “everything we can” with LRP and crop insurance gives his family the assurance it needs to keep investing for the future. “Whether it’s a breakeven, or even a little less, at least it keeps a guy in the game of farming and ranching instead of having a bad year that wipes you out and you don’t have any recourse or income to offset the loss.”
Benefits of Livestock Risk Protection
- Large premium subsidies to make coverage more affordable.
- Premium payments due at the end of the insurance period.
- Area pricing – never a producer’s price – determines if an indemnity is due.
- Coverage on a wide variety of livestock, including unborn cattle and swine.
- Ability to market livestock up to 60 days prior to end of the insurance period.
