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Producers give a thumbs-up to price insurance

The Western Livestock Price Insurance Program (WLPIP) jumped off to an excellent start in the first year of the new program.

The uptake exceeded expectations in Saskatchewan, since the program didn’t get off the ground until April 8. Starting next year, the window for purchasing calf policies will be February 1 to May 29 in all four western provinces. Feeder, fed and hog programs are already available year round.

As of July 1, Saskatchewan Crop Insurance Corp.’s WLPIP co-ordinator Jodie Griffin says 1,282 producers in her province had enrolled and taken out 1,097 calf policies covering about 15 per cent of the provincial calf crop. Another 216 feeder policies and two fed policies had been sold by the same date, but those numbers were expected to pick up closer to the beginning of the fall run of calves and yearlings.

In Manitoba 555 producers had enrolled by the third week of June and purchased 317 calf policies to cover $27 million, 69 feeder policies worth $21.5 million; and four fed cattle policies worth $229,000.

Craig Thomson with Manitoba Agriculture Services Corp. was sure more producers would sign up as they gain confidence in the program.

In British Columbia 263 producers enrolled by July 1; 207 purchased calf policies and 55 signed feeder policies.

Albertans have had access to price insurance for fed cattle since 2009, feeder cattle in 2010 and calves and hogs in 2011. Hogs were introduced to the other provinces with the WLPIP in April this year.

From April 8 to July 1 in Alberta, 2,036 calf policies, 651 feeder policies and 41 fed price policies were written under WLPIP, as well as seven fed basis policies.

Government policy-makers are watching the uptake in this first year of the four-year pilot program to gain an indication of producer support for the new insurance scheme.

Calf insurance

Those who purchased calf price insurance and then decide to retain ownership are also eligible to purchase feeder price insurance while the calf policy is playing out. The same goes for feeder calves retained for finishing.

The calf insurance program has a deadline because it is intended to reflect what most producers in the West are doing — calve in spring and sell in fall. At times when the trade is light, there isn’t enough cash market information to create robust settlement indexes every week. Settlement tables for the calf program come out weekly from September through December coinciding with the peak period for calf sales in Western Canada.

Producers with calving seasons that run through June can include the predicted sale weight of the unborn June calves in their estimation of total sale weight when purchasing a policy if those calves would normally be sold during the September-to-December settlement period.

Chris Simpson, a cow-calf producer at Rimbey, Alta., says the best way to learn about the program is to participate in it. There’s no minimum weight requirement, so producers can start by insuring the price on some of their calf weight and take it from there as they feel comfortable. When in doubt, the staff are very knowledgeable and helpful, he adds.

He has taken out calf policies in two of the last three years the program has been available in Alberta to set his floor price in the September market. That gives him a hedge against what’s happening in the overall cash market or a marketing catastrophe between the start of calving in January and selling his calves in early September.

Judy Fenton of Irma, Alta., recalls how price insurance served her cow-calf operation well when the former XL plant ran into problems just as the fall run got underway.

She’s enjoying the turnaround in cattle prices, but doesn’t see that as a reason to abandon her risk management options.

She usually insures her total calf weight, but not necessarily at the top price. Bankers look at it much the same, she adds. Whether you’re just getting started in cattle or been at it for years, you need to be able to show them you are trying to mitigate risk.

The top tip we received from producers we talked to for this article was to stay on top of the premium tables. Coverage and premiums change daily. When you see a good match take it that day because you never know what it will be tomorrow.

Simpson didn’t buy a policy last year because he felt the premiums were too expensive for the coverage available. This year he liked the coverage-premium mix early on and started buying coverage right away. The trend remained favourable and he ended up taking out two additional policies as time went on.

Producers can buy more than one policy under the same program component as long as the total calf weight insured doesn’t exceed their predicted sale weight.

Think price

In talking to producers who are unfamiliar with the program, Griffin says she has to emphasize that WLPIP doesn’t guarantee a market price for individual calves. Rather it insures a price you choose against a decline in the overall cash market as determined by actual weekly sales reported by auction markets.

Fed cattle settlement prices are based on contract sales gathered from weekly producer surveys.

The goal is to cover your risk and the best way to do that is to make a reasonable estimation of total calf weight and choose a contract length that coincides with your expected sale date. However, selling the cattle before or after the policy expires doesn’t void the policy.

Knowing your cost of production and break-even price is a good place to start when choosing a coverage level for your own operation.

Craig Ference, who runs a cow-calf-to-finish and grain farm near Kirriemuir, Alberta likes the open upside feature of WLPIP while locking in a floor price for his feeders and fed cattle. In any given year, he’ll market his cattle using a mix of futures, contracts, the cash market and WLPIP.

With a contract, he knows the price he’ll get; not a penny less, but not a penny more either. With price insurance, he knows he’ll get at least the average cash price of the week on his settlement, but there’s nothing stopping him from trying to do better than that because the actual price they sell for doesn’t affect the policy.

If they sell for more than his insured price there’s no payout, but he’s up overall since the cash market is performing better than anticipated. That’s what you want, for the market to outperform WLPIP.

It’s similar to using options, says Ference, but easier because there’s no need to use a broker or to take a position in the futures or options markets.

Leighton Kolk, a feedlot operator from Iron Springs, Alberta has also used WLPIP to lock in his fed cattle when he has seen an opportunity arise or other risk management tools are not available.

He believes the biggest advantage to WLPIP is that it gives ranchers and backgrounders who may not have futures accounts or relationships with cattle buyers an easy way to get a start on risk management. If they are uncertain they can give WLPIP a try on 25 or 50 head to gain some experience.

Easy to use, easy to get into, quick and convenient, these are the chief advantages for WLPIP that came up in our small survey of producers across Alberta who are familiar with the program.

You can add some flexibility to that, as well. Price insurance doesn’t force a producer to sell before he or she wants to in order to make a claim. And it gives you three opportunities to insure the price on the same set of calves through the calf, feeder and fed programs.

For more information go to www.wlpip.ca or contact your provincial insurance provider in B.C. (844) 782-5747; Alberta (877) 899-2372; Saskatchewan (888) 935-0000 and Manitoba (844) 782-5747.

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