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Insurance Tools for Livestock and Dairy Producers

Insurance Tools for Livestock and Dairy Producers

By Brad Lubben

When the farm income safety net and farm bill are mentioned, the discussion tends to turn to a select number of crops — such as corn, soybeans, and wheat, which are the primary beneficiaries of federal commodity programs and crop insurance support.

That overshadows the significant safety net provided for livestock and dairy producers and the substantial growth of insurance tools in that portfolio.

Dairy producers are already familiar with federal commodity programs. Price support programs that date back decades gradually transitioned to income support programs before shifting to margin-based supports in the past two farm bills.

More generally, livestock producers also benefit from a portfolio of standing disaster assistance programs, including the Livestock Indemnity Program (LIP) for death losses because of disasters; the Livestock Forage Disaster Program (LFP) for grazing losses due to drought and wildfire; and the Emergency Assistance Program for Livestock, Honeybees, and Farm-Raised Fish (ELAP) for other disaster losses not covered by LIP and LFP.

More than just crops

Beyond commodity programs and disaster assistance, the third part of the federally supported farm income safety net is crop insurance. There are two critical points to be noted about the federal crop insurance program.

First, it is the largest component of the safety net in terms of expected spending under budget projections for the next farm bill. Second, it is for more than just crops. While the crop insurance moniker remains, there are several insurance tools that provide price risk management for livestock producers, including Livestock Revenue Protection (LRP), Dairy Risk Protection (DRP) and Livestock Gross Margin (LGM).

There is also a Pasture, Rangeland, and Forage (PRF) policy that provides protection against production losses using rainfall as an index, along with other forage policies relevant to livestock producers. While not specifically written for livestock producers, the Whole Farm Revenue Protection (WFRP) policy can also protect combined crop and livestock operations.

Like crop insurance, the livestock insurance products benefit from federal support in the form of subsidized premium costs, direct supports to insurance companies for administration and operating costs, and re-insurance policies to help reduce the portfolio risk that insurance companies take on in writing policies.

The use of these livestock insurance products has grown substantially over the past 20 years as new products have been developed, substantial policy improvements have been made, and producer education and awareness have increased.

The broadest measure of utilization is the total liability insured. Utilization or liability for the specific livestock and dairy products mentioned above has grown dramatically in the past few years.

The dairy sector represents about half of the total coverage in place in 2022, primarily from the DRP policy that covers milk price risk. LRP policies that cover price risk and PRF policies to cover grazing and forage production risk have also grown in utilization over the past several years. LGM policies that cover milk prices less feed costs for dairy or livestock prices less purchased livestock and feed costs for other species also add to the total.

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