In our final post in the October series on weather risk management tools for livestock we cover the Livestock Indemnity Program (LIP). While LIP does not provide indemnities for losses from drought, it does provide indemnities in the event of disaster which includes wild fires and extreme heat, among others.
Local Market Conditions
Livestock Indemnity Program
In our part of the state, many of us have regular overlap with Coloradans. I know I’ve been seeing posts from friends about the fires in Colorado, to say nothing of the fires in California. Many of those posts are about people opening the gates to let cattle, horses, and other stock loose to prevent their death from wildfire. Thankfully, the winter weather seems to have provided some relief to our neighbors up north, but many of them will be returning to devastating loss. These circumstances are the backdrop for a discussion about the final livestock risk management program we’ll discuss this month, the Livestock Indemnity Program (LIP).
LIP provides benefits to livestock owners for livestock deaths caused by eligible loss conditions. Eligible loss conditions include eligible adverse weather, eligible disease, and eligible attacks by animals reintroduced by the federal government. However, the occurrence of an eligible loss is not determinative on its own of eligibility for livestock losses. The owner must provide evidence to FSA that the cause of loss occurred and directly caused loss/death.
To be eligible for LIP an owner must have owned the livestock on the day that the livestock died and/or were injured. For example, livestock must have died in excess of normal mortality, been injured, or sold at a reduced price for as a direct result of eligible conditions. The list of eligible loss conditions is extensive. Remember, drought itself is not an eligible loss, however some conditions which accompany drought are included.
Eligible loss conditions include certain adverse weather/natural events:
- Tropical Storm
- Vog directly related to a volcanic eruption
- Winter Storm, if it lasts for three consecutive days and is accompanied by high winds, freezing rain or sleet, heavy snowfall and extremely cold temperatures
- Wild Fires
- Extreme Heat
- Extreme Cold
- Straight Line Winds
Of course, we are in Texas, so almost all of these conditions may exist at one time or another. However in keeping with this month’s theme of protection from drought, you can see that Wild Fires and Extreme Heat (which does not necessarily accompany a D-designation) are both eligible losses. Other eligible losses include losses from disease that is exacerbated by an eligible adverse weather event. These diseases include anthrax, which can become a concern during drought conditions. Finally, attack is an eligible loss, which means attack by animals reintroduced into the wild by the federal government. The most common example is depredation by wolves.
Payments are available in the event of livestock death, injury, or sale at a reduced price due to eligible conditions.
LIP payments for death are calculated by multiplying the national payment rate for the species/category by the quantity of livestock, and again by the owner’s share of the livestock. The national payment rates for livestock owners are based on 75 percent of the average fair market value of the livestock. For contract growers, the payment rate is based on 75 percent of the average income loss sustained by the grower.
LIP payments for injury or reduced sale value are calculated by multiplying the national payment rate for the category minus the amount that the owner received for the livestock in that category times the owner’s share. If injured/affected livestock are sold for more than the national payment rate then no payment is provided.
Payment Rates and Examples
2018 LIP Payment Rate for Eligible Livestock Owners (rates have been reduced by the required 75%)
Let’s look at an example of payments for eligible loss conditions which resulted in death. As we stated earlier, payments for dead livestock are calculated by multiplying the national payment rate for the species/category by the quantity of livestock, and again by the owner’s share of the livestock. Let’s consider a dozen beef cows, owned in full by a single person, which died as a result of wildfire. Those payments would be calculated:
Payment = 12 cows * $983.90/cow = $11,806.80
Now, let’s look at an example of payments for eligible loss conditions for the same cows which resulted in injury and reduced sale price. Again, those payments are calculated by multiplying the national payment rate for the category minus the amount that the owner received for the livestock in that category times the owner’s share. Let’s assume that our cows were sold for $700/head as a result of injury from wildfire. Those payments would be calculated as:
Payment = 12 cows * ($983.90/cow – $700/cow) = 12 cows * $283.90/cow = $3,406.80
Those seeking benefits must apply through the local FSA office. Applications and a notice of loss must be submitted to the local FSA office that serves the physical county in which the losses occurred. An owner or contract grower must file a notice of loss within 30 calendar days of when the loss of livestock is first apparent as well as file an application for payment within 60 calendar days after the end of the calendar year.
It is critical that all losses are documented. For livestock lost as a result of an eligible condition, the number and kind must be proven. For those who sold injured livestock for a reduced price, the verifiable evidence of reduced sale value is required. Documentation of livestock sold through a third party (auction, slaughter or rendering facility) via receipts from any of those third parties are required as proof.