08/19/2026
The Basics of Livestock Risk Protection, Part 1
Scott Clawson, Oklahoma State University NE Area Extension Agricultural Economist
Livestock Risk Protection (LRP) has gained popularity in the cattle community over the past several years. Hopefully, this can help answer some of the fundamental questions surrounding it.
What is it?
LRP is an insurance product from USDA-Risk Management Agency. Think of it as the cattle producer’s version of crop insurance.
What does it do?
LRP protects against price declines in the cattle market. This product addresses price risk only. Production risk (mortality, gains, etc.) is still with the producer.
How does it work?
A producer will look at the length of coverage (13-52 weeks) and the coverage price (75%-100%) offered that day. The producer will select the length that closely matches how long price protection is needed and a coverage price (“price floor”) that they feel is appropriate. At the end of the insured period, if the actual ending value is ABOVE the coverage price, no indemnity is paid. If it is below, the producer will receive a payment to offset the loss.
How is the ending value determined?
The ending value is linked to the CME Feeder Cattle Index, not the actual price that the cattle are sold for. The CME Feeder Cattle Index is then adjusted if needed to fit the cattle that were insured based on their s*x, weight, etc. which are all known upfront. Fortunately, Oklahoma’s cattle numbers provide a sizeable contribution to the CME Feeder Cattle Index which means our Oklahoma prices are well represented in the index.
What are the benefits versus using options or hedging?
One significant benefit is it being a per head product. It can be used on a variety of classes of cattle from lightweight calves to heavier yearlings. There is also a fed cattle and an unborn option. Another feature is that should prices continue to rise, a producer will still benefit from the upward price move. Lastly, the premium is paid at the end of the policy so it will not tie up operating capital.
What should someone do that is interested in implementing LRP?
Gather more information. Contact insurance providers that sell this product and discuss your specific situation. Also, there is an abundance of information from cooperative extension services across the country, and LRP price quotes are publicly available daily. A quick online search will satisfy those.
In my discussions with Oklahoma cattle producers, I regularly hear references to the strong prices of 2014 and the decline in 2015. This is the tool that can prevent us from fully realizing that price risk. However, even in these record price years we have experienced periods of retreat in the markets that have had serious negative financial impacts on ranches. LRP is the mechanism we can use to protect equity and cash flow should the market turn, temporarily or cyclically.
Part 2 will address how Oklahoma producers used LRP in 2025/26.