Over the past couple of months, cattle markets have been confronted with several developments that have increased both uncertainty and volatility. The typical seasonal downturn in beef demand during the hottest part of the summer appears to have been more pronounced and longer lasting than normal, as extreme temperatures contributed to a significant summer slowdown in beef movement. As a result, carcass cutout values declined, eventually placing pressure on both fed cattle and feeder cattle prices.

The Livestock Risk Protection (LRP) program is a federally subsidized insurance policy designed to help cattle producers manage price risk. The policy guarantees a price level for cattle at a specific future date. If actual prices at that time fall below the guaranteed price, the policy pays an indemnity equal to the difference. In this way, LRP establishes a price floor for cattle, similar to purchasing a futures put option.