Pilot Hog Insurance Program Approved

November 27, 2001

USDA's Federal Crop Insurance Corporation (FCIC) approved two pilot insurance programs for Iowa swine producers to protect them from lower hog prices. The new programs, which will begin in 2002, were authorized under the Agriculture Risk Protection Act of 2000 (ARPA).

Until ARPA, federally-backed insurance plans providing livestock protection were prohibited by law. These types of livestock insurance programs, if successful, should provide livestock producers risk management tools for reducing their price risks, says RMA. Livestock products represent about one-half of the total farm cash receipts.

The "livestock gross margin" (LGM) pilot, submitted by Iowa Agricultural Insurance Innovations, provides coverage to swine producers from price risks for six months and up to 15,000 hogs per period. The product protects the gross margin between the value of the hogs and the cost of corn and soybean meal. Prices are based on hog futures contracts and feed futures contracts. LGM protects producers if feed costs increase and/or hog prices decline. Coverage levels range from 85-100%.

A "livestock risk protection" (LRP) pilot, submitted by the American Agri-Business Insurance Company, protects against a decline in hog prices. Swine, can be insured for 90, 120, 150, or 180 days, and up to a total of 32,000 animals per year. Unlike traditional crop insurance policies which have a single sales closing date each year, LRP will be priced and available for sale continuously throughout the year. The policy LRP protects producers against declining hog prices if the price index specified in the policy drops below the producer's selected coverage price. Coverage levels range from approximately 70-95 percent of the daily hog prices.

During the next six months, program materials will be developed and agents will be trained. The LRP sales are scheduled to begin next April. LGM insurance product is scheduled for sale in July 2002 for the Aug. 1- Jan. 31 insurance period. Both products will be available from private insurance agents. The length of the pilot programs will be determined by farmer participation, and the financial performance of the programs.