Since inception, more than 20 years ago, LRP-Feeder Cattle offered coverage for steers, heifers, predominantly dairy feeder cattle, and predominantly Brahman feeder cattle. Heavy steers with target weight 600-1000 lbs (‘Steers Weight 2’) were considered as ‘base’ type, and other types were valued at a fixed multiple of steers weight 2. That multiple is referred to as Price Adjustment Factor, abbreviated as PAF. Prior to RY2026, PAFs were fixed for each type and published in Special Provisions:

Rising adoption of sexed semen in dairy cattle created the opportunity for dairy farmers to breed their most productive cows to produce replacement heifers, and other, less productive cows to produce beef-on-dairy calves, typically sold off the farm within days of birth.

A few years ago, we’ve been asked to consider expanding LRP to allow coverage of beef-on-dairy day-old calves. In researching the price patterns, we quickly discovered that beef-on-dairy calf prices reflect not just market value of steers, but also the expected gross margin on those steers (the difference between expected value of beef per cwt and the cost of feeding the calf to market weight). If feed costs are stable, and beef prices increase, gross margins will increase at a faster rate (percentage) than beef prices. Consequently, the ratio of beef-on-dairy calf prices to CME feeder cattle index increases when CME feeder cattle index increases.

Year	CME Feeder Cattle Index ($/cwt)	Beef-on-Dairy Calf Price ($/cwt)	BOD Calf Price / CME Feeder Cattle Index
2020	134.91	171.81	127%
2021	146.54	207.61	142%
2022	167.22	259.01	155%
2023	217.59	487.32	224%
2024	248.35	811.48	327%
2025	285.11	1067.36	374%

To properly price LRP coverage of beef-on-dairy calves, we had to invent an new way to set the Price Adjustment Factor so that the PAF reflects relative values of beef-on-dairy calves and beef steers at the time when the endorsement is purchased.

In this blog post, we will review the details of the method for setting the PAF.

1. Calculating Monthly Beef-on-Dairy Calf Prices

Initially, the data we will use will be sourced from two USDA AMS weekly market summary reports:

• New York Weekly Cattle Auction Summary
• Pennsylvania Weekly Cattle Auction Summary

As we find additional stable and credible sources of data, we will consider expanding the source data set.

Within these reports, we use the data solely from the “Feeder Dairy Calves” category, including both bulls and heifers, and using only prices where report indicates the reported data are for “Beef Cross” with a quality grade of #1, #2 or #3. Only calves with an average weight range in the 50-200 pounds would be considered. Here’s a screenshot from the report published on June 9, 2025:

Based on the reported data we will derive monthly beef-on-dairy calf price using data from any report week that ends on a Friday, provided the report is also published by the last business day of the month. For example, to calculate prices for April 2025, we would use reports published on 4/7, 4/14, 4/21 and 4/28. However, for May 2025, we would use reports published on 5/5, 5/12, 5/19, and 5/27, and would omit the report published on 6/2, even if the data in that report spans only days in the last week of May (5/25/2025 – 5/31/2025) and contains no June prices.

To calculate monthly average price we will calculate the total sales value across all eligible transactions, and divide by total weight summed across all eligible transactions. Continuing with an example from the June 9, 2025 report:

Consider the transaction with 4 head sold in the screenshot above. Transaction sales value is $1,519.85 x 4 x 85 lbs / 100 = $5,167.49. Transaction total weight is 4 x 85 / 100 = 3.40 cwt.

In April 2025, there were 163 eligible transactions. Total of 1322 calves were sold, total summed weight was 125,250 pounds o 1,252.50 cwt. Total value of sales was $1,486,641. Therefore, April 2025 monthly price for beef-on-dairy calves is calculated as $1,486,641 / 1,252.50 = $1,184.20/cwt.

2. Calculating Monthly CME Feeder Cattle Index

CME Feeder Cattle Index is published daily, with a lag of one business day. To derive monthly index value, we calculate the simple average of the CME Feeder Cattle Index for the month, including all days for which index is published by the last business day of the month. Note that this may from time to time mean the final day of the month is excluded. Note further that the CME Feeder Cattle Index is itself a 7-day average. As an example, April 2025 CME Feeder Cattle Index average value is $290.63, as rounded to the nearest cent.

3. Calculating price ratio

Monthly ratio of beef-on-dairy cross calf prices to CME feeder cattle index is then calculated by dividing the value calculated in #1 above by the monthly average CME Feeder Cattle Index calculated in #2 above. For April 2025, that is equal to $1,184.20 / $290.63 = 407 (rounded to the nearest whole percent).

4. Calculating Price Adjustment Factors.

Monthly price ratio calculated in #3 is used as a starting point for calculating Price Adjustment Factors for endorsements sold in the next month. However, before final PAFs are set, we need to apply seasonal adjustments. Our data suggests that the ratio of Beef-on-Dairy calf prices to CME Feeder Cattle Index values tend to be higher from February to May, with the highest ratio observed in April. Over the 5-year period, May 2020 through April 2025, the monthly price ratio varied as shown in the table below:

Month	5-Year Average BOD Calf Price / CME Feeder Cattle Index	Price Adjustment Factor for SCEs sold in May 2025
January	96%	407 / 124 x 96 = 315
February	104%	407 / 124 x 104 = 341
March	114%	407 / 124 x 114= 374
April	124%	407 / 124 x 124 = 407
May	105%	407 / 124 x 105 = 345
June	97%	407 / 124 x 97 = 318
July	93%	407 / 124 x 93 = 305
August	91%	407 / 124 x 91 = 299
September	92%	407 / 124 x 92 = 302
October	97%	407 / 124 x 97 = 318
November	93%	407 / 124 x 93 = 305
December	93%	407 / 124 x 93 = 305

If RY2026 rules were already applicable for endorsements sold in May 2025, then the Price Adjustment Factor for Unborn Calves would be calculated by multiplying de-seasonalized April price (407/124 = 328) by the monthly average price ratios for the past 5 years. For example, PAF for endorsements ending in November would calculated as 407 / 124 x 93 = 305%.

Note also that under this method, two endorsements ending on the same day, e.g. December 15, 2025 could have different Actual Ending Values. For example, if PAF for December 2025 endorsements sold in July 2025 is 350, and PAF for December 2025 endorsements sold in August 2025 is 300, and CME feeder cattle index for December 15, 2025 is $250, then the actual ending value for the endorsement purchased in July with end date 12/15/2025 will be 350% x $250 = $875, while the actual ending value for the endorsement purchased in August with the same end date of 12/15/2025 will be 300% x $250 = $750.