Document Type

Other

Publication Date

7-1-2010

Keywords

livestock marketing, insurance tools, price outlook, pricing tools

Extension Number

ExEx 5079

Department

Economics

Description

The insurance industry has introduced several livestock products in recent years to manage different types of price risk. The change adds insurance tools such as Livestock Risk Protection (LRP) and Livestock Gross Margin (LGM) to the list of traditional marketing tools such as cash sales, forward contracts, futures contracts, and options contracts. The challenge is to pick the right product at the right time at the right price. This decision aid leads you through choices to a specific tool or small set of tools that would help manage the risk in a cost-effective way. As you move through the guide, be aware that all prod¬ucts may not be available at a given time or for a given type of livestock. You may also not be willing or able to use a product, whether for lack of a contract with an intermediary or because of a disparity in the number of head you want to cover and the number allowed or represented by contracts. The key first decision concerns the certainty of your price outlook. If you expect price to move in a given direc¬tion (including sideways), then follow the “certain” path that leads to pricing-focused tools. If multiple price levels can be reasoned, then follow the “uncertain” path that leads to protection-focused tools. If you reach a tool you are not willing or able to use, then look for a different path.

Download
COinS