So, you’re running a livestock operation. Maybe you’re focusing only on meat or dairy or all of the above, perhaps even juggling those alongside some row cropping and looking into more coverage.
Table of Contents
- First of All: There Is No “One Size Fits All” Insurance for Livestock or Dairy.
- The Different Types of Dairy and Livestock Insurance
- Livestock Gross Margin (LGM)
- Livestock Risk Protection (LRP)
- Dairy Revenue Protection (DRP)
- Can you Enroll in More Than One of These Coverage Plans?
- What Is The Quickest Way to Know Which Plan is Best For Me?
- Can you Enroll in More Than One of These Coverage Plans?
- Do Livestock Plans Cover ALL Types of Livestock?
As you know, profit margins can be razor-thin for livestock and dairy farmers. And the markets can be unpredictable. Naturally, any extra financial protection and security you can find peaks your interest— which leads you towards crop insurance livestock coverage. Maybe you want to expand or try it out if you haven’t already.
For those new to the world of livestock and diary insurance specifically, getting coverage can look different than the typical row crop insurance. There are many different subcategories with varying abbreviations, meanings, and strategies to livestock coverage that can be hard to navigate at first.
For someone who just wants simple coverage for their operation, where do you even start? Lucky for you, we’ve put together this little guide to help you get acquainted with different types of dairy and livestock insurance coverage. Our goal was to break down DRP, DMC, LRP and LGM in the simplest possible way.
This will give you the basic knowledge needed to start talking to your insurance agent. So sit tight and learn about the different types of dairy and livestock insurance available and which kind you should get— so you can save yourself some time, and feel informed about your options!
First of All: There is No “One Size Fits All” Insurance for Livestock or Dairy
Talk to an insurance company or agent and you’ll quickly learn: getting your livestock or dairy products covered isn’t a walk-in, walk-out process. For the best coverage, you’ll need to have an in-depth talk about your enterprise, its needs, its numbers, and production history to get all your insurance options on the table.
While one type of policy may work well for one producer, it doesn’t mean it will work well for all businesses. But on the whole, all of these policies are designed to complement the vast majority of livestock or dairy operations. There are different aspects of coverage — such as risk, revenue, gross margin, and more — that you’ll want to understand in order to determine which combination will be best for YOUR own business. To protect your livelihood in the most effective way possible, your policies will probably look different from other farmers or ranchers and that’s okay!
So, what are all the ways you can get covered? How do you determine which kind of dairy or livestock insurance would be best for you and your operation? To help you figure that out, we’ll look at all the different options right here so you can determine which may be the best fit for you and your financial security.
There are many different types of dairy and livestock insurance.
Livestock producers and farmers may visit websites or talk to insurance agents only to have hard-to-understand terms or acronyms thrown at them: Risk protection. Gross Margin Coverage. DRP. LRP. The list goes on and on.
Below is a guide to the most common terms you’re likely to come across in the industry as a dairy or livestock farmer exploring their insurance options. You’ll hear these often when pouring over options or speaking to an agent, but it’s not always straightforward (or intuitive) to know what they might mean.
Having a basic knowledge of these can help you feel better equipped and confident that you’re getting the right coverage while also dispelling any possible confusion and uncertainty in the process. This will help match you with the right plan and protection for you and your business that much quicker.
Livestock Gross Margin (LGM)
This type of coverage is broad spectrum and wide-reaching, meaning it can cover a wide variety of different enterprises: not only the livestock themselves but also the products they produce (so yes, that includes dairy). LGM can cover dairy though in this form it’s sometimes called DGM or Dairy Gross Margin coverage (scroll down to read more about this).
The way LGM works: policies protect against any reduced gross margin in projected established margins that year based on market prices for products or livestock feed. This gross margin is calculated by subtracting the feed costs for livestock from the established market value of the product: whether that be the livestock, meat, or dairy product (including yearlings, swine, etc.).
If this gross margin is compromised — whether through an increase in feed prices, or a drop in dairy or other prices — your LGM coverage plan would kick in and cover you from any deficit you experience as dictated by the market. This type of coverage is a good plan for farmers and producers who deal with fairly volatile prices or if they feel (or know for certain) that changes in market prices impact them the most.
Livestock Risk Protection (LRP)
While dairy farmers can certainly benefit from this type of policy, LRP or Livestock Risk Protection policies are more dialed into the needs of livestock ranchers specifically. That said, coverage of any cattle through a livestock policy no doubt has great promise for any dairy operation.
The way LRP works: you get covered for the decline in livestock prices, pure and simple. Most coverage plans will offer anywhere between 70% and 100% of the losses on various types of livestock. That means if prices dip anywhere under those percentages, you’ll be compensated for that price loss — and yes, if you have a 100% deductible, ANY dip in price with your livestock means more money in your pocket!
Plans can cover a wide range of different livestock types from cattle and swine to feeder cattle (and fed cattle as well). Again, this may be the better plan for you if you have a diversity of different livestock under your enterprise and if you don’t specialize in dairy (though dairy farmers can certainly benefit) and if feed prices are the most likely issue to get your goat.
Dairy Revenue Protection (DRP)
Take the previous policy, Livestock Risk Protection (LRP), give it a “dairy spin” and you have Dairy Revenue Protection (DRP). This approach works much like LRP, only it is more closely tied to the typical ups and downs of the dairy industry. Since fluctuating prices tend to be far more volatile and less predictable than livestock prices, a completely separate approach to coverage is set aside for dairy.
The way DRP works: if there are drops in milk prices that impact your bottom line and revenue projections, coverage kicks in to fill the gap based on future expected milk (or milk solids) prices. To get more into the specifics of coverage, this gap is determined by quarterly (3-month) insurance periods where revenue is “set” at the beginning of each.
When the price drops during this set quarterly period (from the projection set at the time insurance is obtained), you will then be compensated for the revenue drop during that period if it doesn’t meet your projected gross sales.
You can go in one of two directions with DRP. There is the Class Pricing Option, which is based on milk prices and milk prices only. Then there is the Component Pricing Option based on the prices for milk solids, butterfat, and protein for processed and value-added dairy products. Obviously, the choice comes down to what the final product of your dairy will be.
Dairy Margin Coverage (DMC)
The Dairy Margin Coverage program (DMC) is offered through the USDA Farm Service Agency (FSA) and is also similar to the prior program it replaced (Margin Protection Program for Dairy or MPP-Dairy). Just like DRP correlates to LRP, DMC works a lot like Livestock Gross Margin (LGM). When the margin between national milk prices and cattle feed prices hits a certain level, coverage kicks in to compensate producers for feed price increase or milk price decrease (it doesn’t matter which one— it’s the margin that counts).
More on how DMC works: no quarterly periods are set for this approach, unlike DRP. Compensation can also kick in at any time. Your agent will talk about your production history with you and establish what your dairy operation is bottom line expected to produce. You can also enroll with a network or co-op of dairy producers under one policy, including and not just limited to your operation alone.
If dairy prices drop and interfere with these projections, you get covered. If feed prices likewise go up, you get covered. If both occur— you get covered. If the margin meets a certain point that interferes with your financial bottom line, this is where your policy would come in handy.
For the most part, the government completely covers the costs for this type of insurance (if you qualify as a dairy farmer). But you also have the option of buying higher tiers of coverage, even catastrophic coverage where you can pay a premium on top of what the government covers for you.
Can you Enroll in More Than One of These Coverage Plans?
The answer is yes, absolutely. That is: certain different plans overlap really well and grant you airtight coverage, while some other plans are designed to be separate options, and it may not make sense to have both together. Although in most cases, the more different types of coverage, the better.
It also should be noted that similar plans (like DMC and DRP) cannot cover the exact same products or revenue. BUT…you can have one policy cover a portion of these, and then another policy to cover the rest.
The best way to pick your perfect plans: talk to an insurance agent that specializes in these policies (like us!) so they can walk you through which combos will work the best for your operation. As a quick overview, some policies that work great together are Dairy Margin Coverage (DMC) and Dairy Revenue Protection (DRP) for dairy farmers. For farmers diversifying with dairy in addition to other livestock products, Livestock Gross Margin (LGM) and DRP is probably the way to go.
What Is The Quickest Way to Know Which Plan is Best For Me?
Any of these insurance plans will have great protection potential for a wide array of farmers. An insurance agent will know best how to tailor the right plans to your specific business needs; that said, there are certain “tells” that may indicate certain policies will work better for you than others.
Obviously, if you want to save money, a government-subsidized policy like Dairy Margin Coverage (DMC) is the best option—who doesn’t like free money? If you find yourself at the mercy of dairy or livestock prices, which tend to fluctuate wildly for some periods of time, then Dairy Revenue Protection (DRP) or Livestock Risk Protection (LRP) will help shield you during these periods.
Or, let’s say you are an organic farmer or other specialized grower, and feed prices can be on the higher end (or go up sporadically). Livestock Gross Margin (LGM) or Dairy Margin Coverage (DMC) may then be the better fit for organic dairy or livestock, as these will guard you against any revenue losses owing to an increase in those outrageous premium feed prices.
Do Livestock Plans Cover ALL Types of Livestock?
This depends on the insurance company, of course! Here at Scott Colville Crop Insurance, we are only equipped to cover cattle and swine at this time. Even so, we cover yearlings, feeder cattle and fed cattle and many different sub-categories in between for these types of livestock. Many insurance companies, however, are moving into (or have already moved to) cover more types of livestock like lamb, chicken, and turkey.
It’s important to remember, these insurance plans will not directly cover the livestock themselves. Death, illness, or other types of “damage” to your livestock (or assets that help you raise livestock) are not covered under these plans. Most policies only protect your income against high overhead, market fluctuations and other influences; but not things like death, disease, weather-related loss to cattle, damage to infrastructure, equipment, or other things.
The different types of dairy and livestock insurance can seem confusing at first. But, with a little bit of info and a chat with an insurance agent, it’ll take no time for you to determine what livestock insurance policies will best protect you and what you care about most in your business.