LRP gossip unwarranted
Posted on January 16, 2026 by Nevil Speer
Source: Farm Progress. The original article is posted here.
Blame game: Let’s stick with the theme of the previous column , only this time shift focus to LRP. Readers likely remember the market break in 2023. At the time, one of the industry’s commentators pinged LRP as the likely culprit: “There’s been some negative things come out here in the last several months about LRPs…There’s been a few things that’s happened with them that may have caused the feeder board to fall under more pressure than usual…but that’s just because a lot of the big dogs .”
Fast forward two years (December 2025). Same song, different verse: “…you can’t tell me that these clearing houses that are selling those LRPs aren’t using the board to hedge their risk. They’re just doing it in bigger bundles ...Everybody’s getting tired of it.”
The implication being the insurance companies are to blame when the market doesn’t go your way. Let’s address all that from two perspectives.
1. Data: Three charts are included at the bottom of the column:
The first chart simply provides some historical context detailing feeder cattle LRP coverage and the feeder cattle index over time.
The second chart provides a snapshot of the respective categorization of coverage.Note, NOT ALL of the policies are directly tied to the feeder cattle index.Moreover, the relative proportion of LRP volume is relatively small compared to the broader business considering the volume of feeder cattle traded over the course of a year.
The third chart highlights the weekly change in the CME feeder cattle index and LRP volume; the correlation is effectively zero – there is NO relationship among the two.
Related: You vs. You: Fear or greed
2.Business: Now, let’s turn to the business – several items are important here.
As it pertains to broader business strategy, it’s important to remember insurance companies generate profit from premiums and investments.That is, the insurance company sells the policy based on an actuarial risk assessment.The premium generates revenue.That gets repeated across multiple ( diversified ) fronts thereby reducing underwriting risk.The company then converts the pool of those premiums into multiple ( diversified) investments thereby reducing investment risk.Diversification being the key risk management tool around the entire portfolio.
The diversification strategy is best illustrated by Tom Gayner (CEO, Markel ) in a Farnam Street podcast ( episode 186 ) – even when it doesn’t work. Notably, Gayner explains how Markel’s event cancellation business took a severe hit in 2020; it included:
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… things like Wimbledon in England, the Tokyo Olympics, a wine festival in Napa, a music festival in Tennessee, a fiddler’s convention in Kentucky…It was a well-diversified book of business. But the losses on it were complete and total. So, it didn’t matter. You as an underwriter thought you were doing a good job because you were diversified. And how could all these risks correlate to one thing? Well, we found out how they could all correlate to one thing: a worldwide, global pandemic.
With that in mind, any declaration regarding insurance companies are “using the board” is just idle gossip .Any supposition as to specific positions is unknowable , else the CME would be violating the principles of confidentiality.And if we don’t know, then let’s NOT talk about it.
Finally, when an insurance company sells LRP, they’ve effectively become speculators (long the market).And being a speculator on one side of the trade, and a hedger on the other side of the same trade doesn’t make sense. That’s the inference surrounding the claim they’re “using the board”. That is, a one-to-one transfer; LRP gets directly converted to a hedging position. And all the insurance companies operate in the same way. Again, none of us really know (because its proprietary information), but what’s most likely occurring is that IF / WHEN insurance companies take futures position it’s centered around managing risk of the broader LRP portfolio. And that comprehensive risk, and subsequent futures positions, likely varies greatly across the companies. Therefore, any suggestion insurance companies are the force behind the market’s plunge doesn’t really make sense (and if it did, do they get credit for when the market goes up?).
Related: Farm Progress America, January 23, 2026
Invaluable Tool: Idle gossip is never beneficial. And in this instance, it’s unlikely LRP providers are spending much time/effort worrying about futures markets – they’re more focused on managing a bigger book of business. Given the amount of equity at risk in the current business environment, instead of poking at LRP, the better discussion would be directed towards promoting the benefits. It’s an invaluable tool for producers.
Clark County Feeders is a BQA Certified 655-acre feed yard and grain storage facility specializing in beef cattle custom feeding and grain purchase, storage and sales.
