Crop Insurance Today November 2011 - (Page 10)

TODAYcrop insurance The State of U.S. Livestock Insurance By, Dr. Keith Collins, NCIS Editor’s Note: Dr. Collins made a presentation on the state of U.S. livestock insurance products at the Congress of the International Association of Agricultural Production Insurers in early October. His presentation, in article format, is below. U.S. farm sales of livestock products are expected to total over $160 billion in 2011. But the total insured value of livestock under Federal crop insurance is only a little over $1 billion. This article discusses why livestock insurance coverage is low, how livestock plans of insurance have performed and prospects for the future. U.S. Livestock Producers have a Number of Risk Management Options Producers face many risks in producing and marketing of livestock. Weather may impair or kill livestock. Animal diseases may cause death or reduced productivity (mortality and morbidity). Feed supply, quality and price may affect productivity and production expenses. Selling prices depend on animal quality and uncertain global markets. Fortunately, producers have options to reduce the many risks they face. • Farm management. Proper management of breeding and raising livestock (husbandry) is a primary form of risk management. Possible losses of income, assets, or the farm business are strong incentives to follow proper animal health and biosecurity practices. • Government disease management programs. There are many government programs to detect, control and eradicate animal diseases. They involve 10 november 2011 inspecting and testing animals in transit and when entering the food chain, preventing diseases from entering the country and eradicating diseases through testing and depopulating. The Animal Health Protection Act requires indemnification of producers whose livestock are depopulated as a result of a disease meriting eradication. USDA’s Animal and Plant Health Inspection Service (APHIS) compensates owners of depopulated animals at a level that is less than or equal to the fair market value less compensation received, including salvage value or payments from states or other sources. Livestock insurance indemnities would reduce the APHIS payments. Compensation may include costs for cleaning, disinfection and disposal but does not cover costs related to business interruption, such as lost demand. • Private insurance. Private insurance is available for livestock producers for many perils ranging from fire and lightning to hurricanes, drowning, attack by wild dogs, building collapse, and so on. Mortality insurance which pays for death loss due to disease has generally been used only for limited animal types, such as horses, pets, and valuable breeding stock. • Farm income support and disaster assistance programs. Several USDA farm programs have helped livestock producers mitigate risk. The Emergency Loan Program helps producers recover from production losses due to drought, flooding, other natural disasters or quarantine. Loans are for up to 7-years, have low interest rates and must be backed by collateral. Two programs created by the 2008 Farm Bill also aided producers. One, the Emergency Assistance for Livestock, Honey Bees and Farm Raised Fish (ELP), provided payments for feed assistance as a result of natural disasters and for death loss due to disease not adequately covered by other programs. Another, the Livestock Indemnity Program (LIP) provided payments for death loss due to adverse weather in excess of normal mortality. The legal authority for ELP and LIP expired on September 30, 2011. Reauthorization of these two programs will be a 2012 Farm Bill issue. • Forward selling. Futures and options contracts exist for feeder cattle, live cattle, lean hogs, frozen pork bellies, and milk which can hedge market risk. Feed costs may be hedged with corn, soybean, soybean meal and wheat futures and options. Futures and options use by producers is limited by: brokerage fees, the need to meet margin calls when a contract is in a loss position, basis risk, the large fixed quantity in the exchange’s contracts and producer knowledge. Many farmers prefer forward contracts which can be better tailored to their business. Production contracts, common in the poultry industry, have increased in other areas, such as hog production. Under a production contract, the farmer raises the livestock, may be provided some inputs, and is paid for other input costs and a return for labor and management, while the integrator owns and markets the animals. • Federal crop insurance for feed production, quality and prices and for

Table of Contents for the Digital Edition of Crop Insurance Today November 2011

Primum Non Nocere
Systematic Risk: Crop Insurance in Retrospect and Prospect
The State of U.S. Livestock Insurance
Crop Insurance in 2020
Dr. Wally Nelson Receives Siehl Prize
High Temperature Effects on Corn: How high is to high?
Educating Adjusters for Over Three Decades
On the Road

Crop Insurance Today November 2011