11 Livestock Indemnity Program (LIP) James B. Johnson Emeritus Professor MSU Department of Agricultural Economics and Economics Billings, MT January 28, 2010 Collaborating Partners: RMA Billings Regional Office Fort Peck Community College

2 LIP Overview LIP provides payments to eligible livestock owners and contract growers for death losses in excess of normal mortality rates. The indemnity payment rate for livestock owners is 75% of the average market value on the day before the death. The indemnity payment rate for contract growers is 75% of the average income loss sustained with respect to the livestock death. LIP does NOT have a risk management purchase requirement for program benefit eligibility.

3 Basics of LIP LIP payments will be based on an individual producer’s eligible losses due to adverse weather events/conditions. No Secretarial Disaster Declaration, Presidential Disaster Designation, State, county or other trigger is needed to define eligibility for LIP. Adverse weather events that include blizzards, tornadoes, lightning; earthquakes, floods, extreme cold, extreme heat, wildfire and disease may cause livestock deaths that can be compensated under LIP.

4 Basics of LIP, con’d. Wildfire that causes livestock deaths must be related to an adverse weather event. Disease that causes livestock death must be related to an eligible adverse weather event. Drought is not an eligible adverse weather event for the cause of livestock death under LIP except when associated with anthrax. Eligible livestock are those maintained for commercial use as part of a farming operation.

5 Basics of LIP, con’d. There are many different kinds, types, and weights of livestock that may be eligible for LIP. Consider beef animals: TypeWeight RangeNormal Annual Mortality Rates BeefNon AdultLess than 400 pounds3.60% 400 pounds to 700 pounds3.60% 800 pounds or more1.00% AdultCow1.00% Bull1.00%

6 Basics of LIP, con’d. The signup requirement is that livestock producers and contract growers who suffer losses must file a notice of loss within 30 calendar days of when the loss of livestock is apparent. A producer can provide a notice of loss to the local Farm Service Agency office by telephone, fax, or .

7 Basics of LIP, con’d. Proof of death must be provided. Proof can be by such documents as rendering truck receipts, veterinary records, private insurance reports, etc. Documentation must provide the kind/type/weight range of the livestock and the number of livestock in each category. If such forms of proof of loss are not available from a producer, third party certification of loss can be provided under stringent conditions. Application for payment must be filed no later than 30 days after the end of the calendar year in which the loss of livestock occurs.

8 LIP Loss & Payment Calculation LOSSES: –Total Eligible Number Loss = Total Number of Head Loss – Net Loss Threshold –Net Loss Threshold = Loss Threshold – Number of Head Lost due to non-weather events –Loss Threshold = Beginning Inventory x Normal Mortality Rate –These equations state that the losses considered for payment under LIP are the total number lost less normal annual mortality less any losses due to non-weather events.

9 LIP Loss & Payment Calculation PAYMENTS: –Gross Calculated LIP Payment = Total Eligible Number Lost (by livestock kind/type, and weight range) x Payment Rate. –Total Gross Calculated LIP Payment = Sum of all Gross Calculated LIP Payments –LIP will pay up to $100,000 per crop year per person, under a combined limit with SURE, LFP, and ELAP. –Persons and legal entities that have non-farm Adjusted Gross Income levels of $500,00 or more are not eligible for LIP payments.

10 Example of LIP Eligible Livestock Losses A Montana ranch suffered a blizzard on February 12th. As the cows had not calved, there were just mature cows, herd bulls and replacement heifers subjected to the blizzard. The saddle horses were in the barn and not subjected to the blizzard. LIVESTOCKINVENTORYDEATH LOSS (due to blizzard) LOSS THRESHOLD ELIGIBLE NUMBER LOST Cows500305*25 Range Bulls Replacement Heifers Saddle Horses

11 Example of LIP Eligible Livestock Losses * The normal mortality rate for cows is 1%. For the 500 head herd, 500 head x 0.01 = 5 head. LIP only makes payment for 25 head, those in excess of the normal mortality rate: 30 head lost due to blizzard – 5 head = 25 head.

12 Example of LIP Payments  Nationally the Farm Service Agency annually specifies the payment rates for kind, type and weight ranges for livestock. Consider those specified for beef: TypeWeight Range2009 Payment Per Head BeefNon AdultLess than 400 pounds$ pounds to 700 pounds$ pounds or more$ AdultCow$ Bull$903.48

13 Example of LIP Payments  The LIP payments for the example ranch per 2009 value are: LIVESTOCKELIGIBLE NUMBER LOST PAYMENT/HEADTOTAL Cows25$694.98$17,375 Bulls 1$903.48$ 903 Heifers15$463.14$ 5,561 Saddle horses 0$637.50$ 0 TotalNA*NA$23,839 *Not Applicable

14 Summary  LIP provides payments to livestock owners and contract growers for death losses in excess of normal mortality rates.  LIP does NOT have a risk management purchase requirement.  LIP is based on an individual’s losses due to adverse weather events/conditions.  Drought is NOT an eligible adverse weather event.  LIP payment rates are set annually by national-level Farm Service Agency.

15 QUESTIONS?