Disclaimer This presentation is for informational purposes only

Disclaimer This presentation is for informational purposes only and does not supersede any information found in any Livestock Risk Protection contract document or approved procedures

The Agricultural Risk Protection Act of 2000 (ARPA) allowed for development and sale of federally reinsured livestock insurance plans

LRP developed under 508(h) of the Federal Crop Insurance Act and currently owned by; Applied Analytics Group, Inc. 621 W. Barry Suite 302 Chicago IL 60657 LRP@apldag. com

Underwriting Capacity n Livestock funds limited by ARPA n “Real Time” Underwriting via Risk Management Agency website n Daily limit of premium sold q Coverage not available if limit has been or might be exceeded.

LRP Flexibility n Timing of purchase q Coverage available throughout the year n Price to be covered q Multiple coverage prices n Select endorsement period q 13 to 52 weeks available n Number of head insured q From 1 head to endorsement and policy limits

FCIC Board approved implementation of LRP-Feeder Cattle and LRP-Fed Cattle on December 18, 2002 Sales began June 9, 2003

Bovine Spongiform Encephalopathy n LRP Feeder Cattle and Fed Cattle sales suspended December 23, 2003 n LRP sales resumed October 1, 2004 under new contract provisions

Availability of LRP Fed & Feeder Cattle Available in all counties of displayed states.

Coverage Availability n Coverage information: q On RMA web site; q Applicable only for date of sale; and, q Available when published on website until 9 a. m. Central Time following day q Available Saturday mornings until 9 a. m. Central Time

Coverage Availability n Coverage NOT available: q Monday mornings, Sundays, Federal or market holidays; q If web site or premium calculator not operational; q If sales halted by FCIC; q Any required data for establishing coverage prices or rates not available; Or, q Futures not trading at end of day q Any other reason in policy

Who Should Enroll (Submit Application) n All producers with eligible livestock located in LRP states n Enrollment gives the right but not obligation to purchase coverage n No cost to enroll

LRP Application (Enrollment) n Establish eligibility q Right but not the obligation q Purchase specific commodity endorsements (SCE) n Application by entity & State q Individual q Partnership; Etc. n Physical location of livestock at time application submitted.

Specific Coverage Endorsement (SCE) n Initiates coverage on named livestock n Attaches to LRP policy n Multiple endorsements allowed subject to policy limitations n 13, 17, 21, 26, 30, 34, 39, 43, 47, or 52 weeks

Endorsement Length n Selected when endorsement bought n All lengths not available every day n Choose available term ending closest to marketing

Target Weight n Anticipated weight at end of endorsement period n Producer estimate at purchase n Used in premium and claim calculations

Insurable Feeder Cattle n Steers q Less than 6. 0 cwt (Steers & Bulls) q 6. 0 cwt to 9. 0 cwt (Steers only) n Heifers q Less than 6. 0 cwt q 6. 0 cwt to 9. 0 cwt n Predominately Brahman & Dairy breeds q Less than 6. 0 cwt (Steers, heifers and bulls) q 6. 0 cwt to 9. 0 cwt (Steers & heifers)

Insurable Fed Cattle n Grade Select or higher n Yield Grade 1 to 3 n Market for slaughter at 10 to 14 cwt at end of the endorsement period

Covered Peril n Price Decline Only! n Price decrease during term of endorsement q Actual Ending Value n Policy end date q Less than coverage price n Selected when endorsement bought

Perils Not Covered n Death, disease n Quarantine, seizure, forced destruction n Marketing decisions q Local price not guaranteed n Any cause not in policy

Coverage Price n Level of policy protection n Multiple prices available daily n Quoted in $ per cwt n Published daily on RMA website n Selected when endorsement purchased

Actual Ending Value Feeder Cattle n Calculated by Chicago Mercantile Exchange (CME) n Reported as CME Feeder Cattle Reported Index n Multiplied by price factor for type & weight of livestock n On end date of endorsement or day prior

LRP Feeder Cattle Price Adjustment Factors Applied to prices prior to publishing.

Actual Ending Value Fed Cattle n AMS 5 Area Weighted Weekly Price q www. ams. usda. gov/mnreports/lm_ct 150. txt n Price Series q Live Basis Sales, Steers, 35 -65% Choice category n Report for week containing policy end date or prior week

Annual Policy Limits (July 1 to June 30) n Feeder Cattle q Not more than 1, 000 head per endorsement q Not more than 2, 000 head per crop year n Fed Cattle q Not more than 2, 000 head per endorsement q Not more than 4, 000 head per crop year

Annual Policy Limits n Individual’s interest in multiple entities q % interest times # head q Not exceed per crop year n 2, 000 head feeder cattle n 4, 000 head fed cattle

Offsetting Transactions n Any transaction making subsidy available for immediate use q Ex. ; Writing a CME put option q Ex. ; Buying (long position) a CME futures contract n Prohibited!!! n Denial of indemnity n Premium owed

Policy Assignment n LRP indemnity may be assigned q Lender q Other creditor n Must be approved by company n Establishes collateral value

72 Hour Notice n Government authority order q Seizure q Quarantine q Forced destruction n Not deliverable due to q Death q Disease n Notify agent within 72 hours of learning of the event

Why Give 72 Hour Notice n If notice given to agent q Affected livestock included if indemnity payable on endorsement n If notice not given q Affected livestock excluded from indemnity calculation q No premium refund

Premium n Premium quotes on RMA premium calculator. n Premium must be paid at LRP purchase n Coverage prices, levels, and rates: q Available on RMA website; q Change daily; And, q Referred to at time of sale for each endorsement.

Premium Example 1. # Head * target weight; 100 hd. * 7. 50 cwt = 750 cwt. 2. #1 * Coverage Price; 750 cwt. * $75 = $56, 250 3. #2 * insured share; $56, 250 * 100% = $56, 250 4. #3 * premium rate; $56, 250 * 0. 013990 = $787 5. #4 * 0. 13 Premium Subsidy; $787 * 0. 13 = $102 6. #4 minus #5 $787 - $102 = $685 Producer Premium

LRP Indemnity n Indemnity payable when q Actual ending value n On policy end date q Less than coverage price n When endorsement purchased

Indemnity Example 1. # Head * target weight; 100 hd. * 7. 50 cwt = 750 cwt. 2. Subtract Actual Ending Value from Coverage Price; $75. 00 – $70. 00 = $5. 00 3. #1 * #2; And 750 cwt * $5. 00 = $3, 750 4. #3 * insured share. $3, 750 * 1. 000 = $3, 750 indemnity

LRP Websites General LRP Information (including rates & prices) q http: //www. rma. usda. gov/policies/2005 LRP. html Premium Calculator q http: //www 3. rma. usda. gov/apps/premcalc/ Livestock Agent Locator q http: //www 3. rma. usda. gov/apps/agentslpi/ CME Feeder Cattle Reported Index q http: //www. cme. com/trading/dta/hist/cash_settled_commodit y_prices. html? type=Feeder%20 Cattle USDA-AMS Fed Cattle Prices q http: //www. ams. usda. gov/mnreports/lm_ct 150. txt

LRP vs Futures and Options Livestock Risk Protection Futures Contract Options on Futures Protects Against Downside Risk Yes Yes Upside Price Gain Potential Is… Unlimited Limited Unlimited Coverage Price Is Based On… Aggregate Cash Price Futures Price Basis Risk Is… Cost of Coverage Is… At Expiration, There Is a(n)… The Contract Is… Acceptability by Lenders Is… Covered (In part) Set by Daily Price, Guaranteed Indemnity Paid, if due An Insurance Policy Universal Not Covered Not Set: Market order or limit order for fill Need to Exit Contract, or Fed Cattle, Deliver A Derivative Contract Limited Not Covered Not Set: Market order or limit order for fill Need to Exit Option or Exercise Option A Derivative Contract Limited

How to Participate in LRP n Producers apply for an LRP policy with their insurance agent. n The application is submitted to approved insurance provider (AIP). q AIP assigns a policy number. n Producer does not yet have LRP coverage. q Right but not obligation to purchase Specific Coverage Endorsement(s).

How to Participate in LRP n Purchase Specific Coverage Endorsement. q Estimate target weight per head. q Select coverage price & endorsement length. q Pay premium. q Agent receives RMA approval number. n Endorsement in effect upon receipt of RMA approval number.