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 ÆLivestock funds limited by ARPA Æ“Real Time” Underwriting via Risk Management Agency website [Agents can’t bind coverage [Must have approval # prior to confirming sale [Approval # indicates remaining capacity

LRP Flexibility Æ Timing of purchase [ Coverage available throughout the year Æ Price to be covered [ Multiple coverage prices Æ Select endorsement period [ 13 to 52 weeks available Æ Number of head insured [ 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

LRP-Feeder Cattle Availability

LRP Fed Cattle Availability Available in all counties of eligible states

Who Should Enroll (Submit Application) ÆAll producers with eligible livestock located in LRP states ÆEnrollment gives the right but not obligation to purchase coverage ÆNo cost to enroll

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

Specific Coverage Endorsement (SCE) Æ Initiates coverage on named livestock Æ Attaches to LRP policy Æ Multiple endorsements allowed subject to policy limitations

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

Endorsement Lengths Æ Feeder cattle 13, 17, 21, 26, 30, 34, 39, 43, 47, or 52 weeks [ 13 & 17 weeks beginning in 2004 [ Æ Fed Cattle [ 13, 17, 21, 26, 30, 34, 39, 43, 47 or 52 weeks

Target Weight ÆAnticipated weight at end of endorsement period ÆProducer estimate at purchase ÆUsed in premium and claim calculations

LRP - Feeder Cattle (Beginning Spring, 2004) Æ Calves, steers and heifers. [ Including predominately dairy and Brahman breeds. [ Target weights up to 900 lbs.

Insurable Fed Cattle ÆGrade Select or higher ÆYield Grade 1 to 3 ÆMarket for slaughter at 10 to 14 cwt at end of insurance period

Covered Peril Æ Price Decline Only! Æ Price decrease during term of endorsement [ Actual Ending Value èPolicy end date [ Less than coverage price èSelected when endorsement bought

Perils Not Covered ÆDeath, disease ÆQuarantine, seizure, forced destruction ÆMarketing decisions [ Local price not guaranteed ÆAny cause not in policy

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

Actual Ending Value Feeder Cattle ÆCalculated by Chicago Mercantile Exchange (CME) ÆReported as CME Feeder Cattle Reported Index ÆFactored for type & weight of livestock ÆOn end date of endorsement or day prior

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

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

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

Coverage Availability ÆCoverage information: [On RMA web site; [Applicable only for date of sale; and, [Available 7 a. m. to 8 p. m. Central Time weekdays

Coverage Availability Æ Coverage NOT available: [ On weekends or federal holidays; Or, [ If web site or premium calculator not operational; Æ Coverage MAY NOT be available if: [ Any required data for establishing coverage prices or rates not available; Or, [ Futures not trading at end of day [ Any other reason in policy

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

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

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

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

Premium Æ Premium quotes on RMA premium calculator. Æ Premium must be paid at LRP purchase Æ Coverage prices, levels, and rates: [ Available on RMA website; [ Change daily; And, [ 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 ÆIndemnity payable when [Actual ending value èOn policy end date [Less than coverage price èWhen 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) [ http: //www. rma. usda. gov/policies/2004 LRP. html Premium Calculator [ http: //www 3. rma. usda. gov/apps/premcalc/ Livestock Agent Locator [ http: //www 3. rma. usda. gov/apps/agentslpi/ CME Feeder Cattle Reported Index [ http: //www. cme. com/dta/hist/cash_settled_commodity_prices

LRP vs Futures and Options

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

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

Final Questions ? ?