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Payout Analysis of Livestock Risk Protection Insurance for Feeder Cattle

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  • Burdine, Kenneth H.
  • Halich, Greg

Abstract

Monte-Carlo simulation was used to examine net payouts, defined as indemnities received minus premiums paid, to producers purchasing Livestock Risk Protection (LRP) Insurance for Feeder Cattle. Actual policies were utilized that included various purchase dates, coverage levels, and premiums from fall 2007 to spring 2013. Net payouts were estimated for time periods typical of both summer grazing and winter backgrounding at various expected price risk levels. Results suggest that expected net payouts generally became positive when producers perceived a 10 percent chance of a $15 per cwt price decrease. Results also suggested expected net payouts were higher for insurance purchased in the fall than in the spring.

Suggested Citation

  • Burdine, Kenneth H. & Halich, Greg, 2014. "Payout Analysis of Livestock Risk Protection Insurance for Feeder Cattle," Journal of the ASFMRA, American Society of Farm Managers and Rural Appraisers, vol. 2014, pages 1-14.
    • Handle: RePEc:ags:jasfmr:197103
    DOI: 10.22004/ag.econ.197103
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    File URL: https://ageconsearch.umn.edu/record/197103/files/407-Burdine.pdf
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    References listed on IDEAS

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    1. Kevin C. Dhuyvetter & Ted C. Schroeder, 2000. "Price-Weight Relationships for Feeder Cattle," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 48(3), pages 299-310, November.
    2. David C. Hall & Thomas O. Knight & Keith H. Coble & Alan E. Baquet & George F. Patrick, 2003. "Analysis of Beef Producers' Risk Management Perceptions and Desire for Further Risk Management Education," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 25(2), pages 430-448.
    3. Brian L. Buhr, 1996. "Hedging Holstein Steers in the Live Cattle Futures Market," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 18(1), pages 103-114.
    4. Brake, William & Anderson, John D. & Coffey, Brian K., 2006. "Geographic and Seasonal Differences in the Feeder Cattle Hedging Risk," 2006 Annual Meeting, February 5-8, 2006, Orlando, Florida 35325, Southern Agricultural Economics Association.
    5. Steven T. Buccola, 1980. "An Approach to the Analysis of Feeder Cattle Price Differentials," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(3), pages 574-580.
    6. Anderson, John D. & Trapp, James N., 2000. "The Dynamics of Feeder Cattle Market Responses to Corn Price Change," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 32(3), pages 493-505, December.
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    Cited by:

    1. Griffith, Andrew P. & Boyer, Christopher N. & Kane, Ian, "undated". "Literature Review: Price Risk Management Contributions to Economic Sustainability in the Cattle Industry," Extension Reports 322767, University of Tennessee, Department of Agricultural and Resource Economics.
    2. Griffith, Andrew P. & Lewis, Karen E. & Boyer, Christopher N., 2015. "Timing the Purchase of Livestock Risk Protection Insurance for Feeder Cattle," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196869, Southern Agricultural Economics Association.
    3. Rocha, Adauto & Michels, Jacob Aaron & de Aguiar Cunha, Margarida, 2026. "Does Basis Risk Undermine Feeder Cattle LRP? Evidence from County-Level Data," 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri 404413, Agricultural and Applied Economics Association.
    4. Yifei Zhang & Andrew Keller & Shawn Arita & Sandro Steinbach, 2026. "Timing, Trading Frictions, and the Limits of Subsidy Capture in Livestock Risk Protection," NBER Chapters, in: Risk and Risk Management in the Agricultural Economy, National Bureau of Economic Research, Inc.
    5. repec:ags:aaea22:343568 is not listed on IDEAS
    6. Boyer, Christopher N. & Park, Eunchun & Griffith, Andrew P. & DeLong, Karen L. & Martinez, Charles, 2023. "Impact of Subsidy on Livestock Risk Protection for Fed and Feeder Cattle," 2023 Annual Meeting, July 23-25, Washington D.C. 335429, Agricultural and Applied Economics Association.
    7. Boyer, Christopher N. & DeLong, Karen L. & Griffith, Andrew P. & Martinez, Charles, 2024. "Examining how Risk Preferences and Information Affect Livestock Risk Protection Use," 2024 Annual Meeting, July 28-30, New Orleans, LA 343568, Agricultural and Applied Economics Association.
    8. Unknown, 2022. "Western Economics Forum: A Journal of the Western Agricultural Economics Association, v.20, Issue 2, Fall 2022," Western Economics Forum, Western Agricultural Economics Association, vol. 20(2), December.
    9. Haviland, Logan B. & Feuz, Ryan, 2022. "Livestock Risk Protection: Selecting Optimal Coverage Contracts for Producers," Western Economics Forum, Western Agricultural Economics Association, vol. 20(2), December.
    10. Haviland, Logan B. & Feuz, Ryan, . "Enhancing Decision Making in Livestock Risk Protection Insurance: Insights into Optimal LRP Contract Selection," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 50(2).
    11. Christopher N. Boyer & Karen L. DeLong & Andrew P. Griffith & Charles C. Martinez, 2024. "Factors influencing United States cattle producers use of livestock risk protection," Agricultural Economics, International Association of Agricultural Economists, vol. 55(4), pages 677-689, July.
    12. repec:ags:aaea22:335429 is not listed on IDEAS

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