By Dr. Kenny Burdine
Over the last several years, I have focused a large share of my Extension program on Livestock Risk Protection (LRP) Insurance as a price risk management tool for feeder cattle. While there are a lot of tools and strategies available, LRP has several advantages including subsidized premiums and the ability to cover most any quantity of cattle. It has been made more attractive in recent years through increased subsidy levels and allowing for premiums to be paid after policy ending dates. Changes to federal insurance programs are very common, but several LRP changes for the 2026 reinsurance year were significant and I wanted to briefly talk about a few of them this week. These changes will impact policies that are effective starting July 1, 2025.
Forward Priced Cattle
In the past, cattle had to be in one’s physical possession to be covered by LRP. With the new insurance year, forward contracted cattle can be covered prior to the insured having physical possession of them. The insured must have physical possession of the cattle during the insurance period and receive those cattle at least 90 days before the ending date of the policy. This will allow individuals to purchase LRP insurance on cattle for which they bear price risk but are still at the location of the seller. This will be attractive to margin operators that purchase cattle via forward contract (or purchase agreement) to be sold later as feeders or fed cattle. There is also potential benefit to the seller of the forward priced cattle as the ability to utilize LRP sooner may impact buyer interest.
Unborn Calves and Cull Dairy Cows
Two new coverage types were added for which LRP coverage can be purchased. A type was added for “unborn calves” intended to be sold within two weeks of birth. Both beef and beef-on-dairy cross calves can be covered, and unborn calves have a target weight range of 60-99 lbs. Full dairy calves must still be covered under the unborn, predominantly dairy type. Calves covered as “unborn calves” must be sold within 30 days (before or after) the SCE (Specific Coverage Endorsement) ending date. While beef calves are included, this category is largely intended for beef-on-dairy cross calves as they are often sold at a very young age and have values that differ substantially from full dairy calves. A new type was also added for cull dairy cows, which can be used to protect the value of dairy cows that are being removed from the herd and are entering the beef system.
Drought Hardship Exemption
Currently, feeder cattle may not be sold any earlier than 60 days prior to the ending date of the LRP SCE for an indemnity to be received. For the 2026 reinsurance year, a drought hardship exemption has been added that will allow producers to keep coverage on feeder cattle sold more than 60 days before the ending date of the SCE if the covered cattle are in a county experiencing a drought and drought conditions worsen after entering the SCE.
Drought conditions are quantified using the Drought Severity and Coverage Index (DSCI), which is based on US Drought Monitor (USDM) data. There are 6 drought levels estimated weekly to quantify how severe drought conditions are in each area – none, Abnormally Dry (D0), Moderate (D1), Severe (D2), Extreme (D3), and Exceptional (D4). DSCI is a weighted summation of the percentage of a county in each designation multiplied by a weight factor that assigns a higher number to more severe drought as follows: DSCI = (1 x %D0) + (2 x %D1) + (3 x %D2) + (4 x %D3) + (5 x %D4). For example, if the entire area were in Exceptional drought, the associated DSCI would be 500 (100% x 5). If half of the area were in D5 and half were in D4, the associated DSCI would be 450 ((50% x 5) + (50% x 4)). To be eligible for the drought hardship exemption, the DSCI must exceed 200 and must have increased by 150 since the effective date of the LRP policy.
Prohibition of Subsidy Capture
Language is now included that specifically states that activity intended to financially gain from the capture of premium subsidy is considered abuse of the program. Insureds are required to provide brokerage records if requested by RMA to determine if abuse occurred. There is also language that describes practices that are presumed to be subsidy capture. Examples of this would include selling a put option very close to the effective date of an LRP SCE that also expires very close to the ending date of that SCE at a premium of more than 80% of the SCE premium. Similar language is also included for creating a short synthetic put by buying futures and selling a call option.
While there is very specific language on what would be presumed to be subsidy capture, it will have virtually no impact on those employing normal risk management strategies. For example, if a producer wanted to use LRP as the lower end of a fence and write an out-of-the-money call option to offset some of the premium cost, they can still do so. And if a producer purchased LRP but saw the market swing much higher over the next couple of months, they could purchase a put option to re-establish a higher price floor. The subsidy capture language is just intended to eliminate abuse of the program and ensure that LRP is being used as a true risk management tool.
Livestock Risk Protection insurance continues to evolve as a risk management tool for livestock producers. The purpose of this article was to focus on some of the more significant changes to LRP for the 2026 reinsurance year. There were some other changes that were not discussed and many specifics that were not covered. Readers are encouraged to engage with an insurance professional for more specific information and guidance. Most importantly, producers should give careful consideration to risk management strategies and tools they feel are most appropriate for their operation.
Source : osu.edu