Consider a scenario where a producer entered into a forward contract to buy bred heifers or cows. The producer would like to buy LRP coverage on calves that will be born to those bred cows or heifers. Does the LRP policy allow that?

Yes, the policy allows that!

Section 6(a) of LRP Basic Provisions specifies that the producer can only cover livestock in which they have “ownership interest during the insurance period under the applicable SCE and which are marketable by the end date.” Section 6(a)(1) identifies three sources of ownership interest: livestock raised by the insured; unborn livestock to be born to cows or sows owned by the insured; or forward contracted livestock.

In this case, the insured is not entering into a forward contract to buy cattle that would be covered, but cows or heifers to which such covered livestock would be born to, so the only potential criteria applicable would be 6(a)(1)(ii) – unborn livestock.

But does buying bred heifers on a forward contract establishes “an ownership interest in pregnant cows”? We have to turn to the definition of livestock purchase agreement:

Livestock purchase agreement – A legal contract to purchase a set number of livestock at an agreed-upon price or pricing formula, specifying the weight or weight range, sex (for sex-specific feeder cattle types only), and designating a delivery or pick-up date period.

This definition is not limited to covered livestock, and therefore is applicable to the scenario considered. As long as the insured has a properly executed “livestock purchase agreement” to buy bred heifers or cows, they can buy LRP coverage for unborn livestock using Unborn Calves or Unborn Bulls and Heifers type.

Producers considering this approach should ensure that all required elements of the livestock purchase agreement, as defined in the LRP Basic Provisions, are present on the forward contract: 1) number of livestock; 2) price or pricing formula; 3) weight or weight range, 4) delivery or pick-up date period.