Feedlot operators in Alberta can now buy cattle price insurance under a program the province’s farm financing agency has had in the making since last December.
Agriculture Financial Services Corp. (AFSC) confirmed Wednesday that cattle feeders can now get enrolment forms and other details online for its previously-announced cattle price insurance program (CPIP).
CPIP, billed as the first program of its kind in Canada, is meant to help Alberta’s feedlot operators manage price risk on fed cattle through price insurance and basis insurance, AFSC said in a release Wednesday.
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CPIP policies for feeder cattle are also under development, AFSC said on its website, but the program will begin now with policies for fed cattle.
A one-time application form is available online or can be picked up from any AFSC district office across the province, the agency said.
Once the form is completed and eligibility confirmed, a participating feedlot operator will get access to the CPIP website.
“Our government understands the risk and price volatility the beef industry faces and identified the need for cattle price insurance in the Alberta Livestock and Meat Strategy (ALMS),” provincial Agriculture Minister George Groeneveld said Wednesday.
“This program is a made-in-Alberta solution that reflects industry needs and allows producers to customize coverage levels and policy length to suit their operation.”
“Fills the gap”
“CPIP was designed to be flexible, and it has absolutely delivered with a voluntary, market-driven program that’s easy to understand,” said Reg Schmidt, chairman of the Feeder Associations of Alberta.
“It fills the gap in price risk management, and we will be encouraging our members to take advantage of this unique risk management tool,” Schmidt, a producer at Thorsby, southwest of Edmonton, said in AFSC’s release.
CPIP, according to AFSC, offers feedlot operators two types of insurance: one for price risk and the other for basis risk. Basis-only insurance is meant to protect against the difference between U.S. and Canadian cattle prices. Price insurance, meanwhile, is meant to cover all three components of price risk: futures price risk, currency exchange risk and basis risk.
CPIP policies are to be offered “continuously” throughout the year, AFSC said, with a range of coverage options of 12 to 36 weeks from the date of purchasing the coverage.
Coverage and premium levels offered to producers change on a daily basis to reflect actual market conditions, adjusting every Tuesday, Wednesday, and Thursday with purchasing also available on those days, AFSC noted. Policies are to be settled against an Alberta average index.
There is no minimum weight to purchase, a feature that AFSC said will allow producers to tailor coverage to their own operations and risk preferences.
Premium levels are to be based on a forecast of what the Alberta fed cattle price will be when each policy expires, AFSC said. That forecast is expected to take into account the Chicago Mercantile Exchange (CME) live cattle futures price, forward foreign exchange and basis.
Premiums are then calculated using this forecast as well as market volatility, and interest rates, AFSC said, adding that producers will want to monitor coverage levels and premiums on a regular basis to decide on the best time to purchase.
“Price impacts”
Eligible producers would pay a premium up front in order to purchase CPIP protection, and a producer has the flexibility to file a claim in the last four weeks of a policy, AFSC said.
CPIP coverage is designed to match the marketing of cattle, but producers are not required to sell their cattle to file an insurance claim, AFSC said.
Policies would be settled using a provincial cattle price index, to be determined weekly based on the average sale price for fed cattle in Alberta.
“This results in payouts that are timely and directly related to price impacts experienced by producers in Alberta,” AFSC said.
CPIP will also be the first of AFSC’s programs to be delivered online, as producers will be able to use the AFSC site to monitor coverage levels and premiums, plus the weekly settlement index.
The site will have security features allowing producers to also buy CPIP coverage and make claims online, AFSC said.
