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Market Advisor: Lamb Price Insurance Available on Sept. 17

A new price risk management tool for market-weight lambs will be available Sept. 17.

By Tim Petry, Livestock Marketing Economist

NDSU Extension Service

A new price risk management tool for market-weight lambs designed to insure against dramatic price declines will be available beginning Sept. 17.

The USDA Risk Management Agency (RMA) is offering the pilot program called Livestock Risk Protection-Lamb (LRP-Lamb). The product will be sold by crop insurance agents, but not all agents are authorized to sell LRP. A list of approved agents is available on the RMA Web site at http://www3.rma.usda.gov/apps/agents/index.cfm.

LRP also is available for feeder cattle, fed cattle and swine.

LRP-Lamb is available to producers in North Dakota, Minnesota, Montana, South Dakota and 23 other lamb-producing states.

Lamb producers who are considering purchasing LRP first must submit a one-time application for approval. Since the approval process may take several days, producers are encouraged to apply at a crop insurance agency soon.

Once a policy is approved, producers are eligible to purchase specific coverage endorsements (SCE). Each SCE will cover from one to 7,000 head of lambs weighing from 50 to 150 pounds. The annual limit per crop year, which is July 1 through June 30, is 28,000 head.

LRP-Lamb will be available once a week each Monday from 10 a.m. to 7 p.m.

Coverage prices, ranging from 80 percent to 95 percent of the expended ending value, will be available on the RMA Web site at http://www3.rma.usda.gov/apps/livestock_reports/main.aspx.

Premiums, which must be paid to the insurance agent before a SCE is submitted, are subsidized 13 percent by the USDA and also will be shown on the same RMA Web site.

Lamb producers may select coverage prices for 13-, 26- or 39-week insurance periods, which should correspond to the actual marketing date for lambs. Since lambs must not be sold until 30 days prior to the maturity date, selecting the appropriate policy length is important.

On the maturity date, if the actual ending value is below the coverage price, an indemnity will be paid to the producer.

Actual ending values are prices reported by the USDA Agricultural Marketing Service (AMS) report titled National Weekly Slaughter Lamb Review, which is issued each Friday afternoon at approximately 3 p.m. The report is available on the AMS Web site at http://www.ams.usda.gov/mnreports/lm_lm352.txt.

The actual value is the weighted average price quoted for formula prices established for previously slaughtered lambs (live basis). The price for the week ended Sept. 7 was $104.81 per hundredweight (cwt).

A chart showing the weekly price history for 2005, 2006 and 2007, plus other educational information on Lamb-LRP, can be viewed on my Web site at http://www.ag.ndsu.nodak.edu/aginfo/lsmkt/livestock.htm. Click on the presentation titled Livestock Risk Protection: A New Price Tool for Lamb Producers.

Prices have ranged from a high of $115.50 cwt in June 2005 to a low of $66.06 cwt in May 2006. Prices declined almost $24 cwt in the first five months of 2006, which is a good example of what LRP-Lamb was designed to insure against.

The American Sheep Industry Association has an excellent online educational course available at http://www.sheepindustrynews.com/LRP_LAMB. It was designed for producers and insurance agents to learn more about LRP and to assist with the decision to purchase insurance.

The basic LRP policy, handbook, frequently asked questions, fact sheets, underwriting rules and premium calculation worksheets for lambs, cattle and swine are available on the RMA Web site at http://www2.rma.usda.gov/livestock.


NDSU Agriculture Communication

Source:Tim Petry, (701) 231-7469, tim.petry@ndsu.edu
Editor:Rich Mattern, (701) 231-6136, richard.mattern@ndsu.edu
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