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Analysis of Livestock Risk Protection insurance in Nebraska

Livestock Risk Protection (LRP) insurance contract that protects against unexpected down swings in the national cattle market price could be used as a risk management tool for these producers to protect their investment.  Like most insurance products, producers should not purchase LRP hoping to collect on it. All else being equal, the preference is for good, strong market prices to prevail along with solid returns on investment. Nevertheless, it should be of interest to producers considering LRP as a part of their market risk management plan to see how LRP has performed over the years. The results for LRP-Fed Cattle were a little less positive in terms of insurance but more positive in terms of the market outcomes. In six out the ten years, the actual ending price value exceeded expectations. However, that led to only three out of ten years where the LRP insurance indemnity exceeded the producer premium. Even with that, however, the average net result for the LRP-Fed Cattle product analyzed over the ten years was a positive $0.27 per cwt. The indemnity ratio was only 1.08 meaning for every dollar collected from producers in premiums, $1.08 was paid out in indemnities.

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University of Nebraska
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