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Calf price insurance: The tale of two years

Calf contract numbers were down in Alberta and Saskatchewan and up in British Columbia and Manitoba in 2016.

Premiums were low relative to rising cattle prices last year during the February-to-May window to buy Western Livestock Price Insurance Program (WLPIP) calf contracts.

When market prices fell last fall, WLPIP paid out significant amounts. It did exactly what it was designed to do — protect producers against an unexpected drop in cattle prices, says Bill Hoar, WLPIP co-ordinator with Agriculture Financial Services Corporation in Alberta.

This year’s premium tables had a different look with price coverage for calves hovering $100 per cwt below last year with much higher premiums. Cow-calf producers wanting to protect a floor price, had to pay more for less coverage than last year.

Many chose to protect the price on only a portion of the expected weight on their fall calves, and not necessarily at the top price.

Overall calf contract numbers were down in Alberta and Saskatchewan, and up in British Columbia and Manitoba in 2016.

“May was the big push,” says Hoar. “People were waiting to see the typical May bump in (insurable) prices, but we just didn’t see it this year. The highest coverage was actually in February.”

May is normally a busy month anyway as premiums get cheaper the closer you get to the sale date for the calves.

Alberta cow-calf producers took out 1,307 contracts insuring 881,000 units for $168 million in liability. Price insurance is sold in hundredweight units, not by the calf. Last year they bought 1,649 contracts on 1.2 million units worth $300 million.

“Even though the totals are lower this year, calf price insurance is a product producers are generally interested in purchasing,” Hoar says.

Manitoba WLPIP co-ordinator Jason Dobbin agrees. “This spring was interesting because even though coverage was lower and premiums were higher, we had 400 new producers sign up and sold 75 more policies than last year covering about 2,300 more calves,” he says.

In all, Manitoba producers took out 326 policies insuring 141,296 units for $26 million in liability. The 2015 tally was 249 policies on 121,953 units with $31.6 million liability.

The fact that the Manitoba program started accepting paper applications and pay­ments by cheque in addition to online purchases by credit card may have played a part in the increased uptake. Also, Dobbin suspects, the increased interest could be because word of the program is still spreading.

The Saskatchewan numbers slipped a bit this spring, but it wasn’t for lack of trying on producers’ parts.

“Interest was great again and producers knew it was important to have price insurance, but it took a lot more discipline for them to participate this year,” says WLPIP co-ordinator Jodie Griffin. “Last year most just bought top coverage, but this spring they really started customizing the program to be a risk management tool. They had their cost of production worked out and took time to understand the premium table better and utilized it more widely to make it effective for their operations.”

Saskatchewan producers took out 1,008 calf contracts representing 12 per cent of the marketable calf crop, or about 96,000 calves. This compares to 1,018 calf contracts last year, representing 15 per cent of the calf crop, or about 120,000 head.

“The massive market correction last fall, as disruptive as it was, showed how robust and responsive the program is,” Griffin adds. WLPIP paid out $4.4 million to cattle producers in Saskatchewan alone.

British Columbia producers purchased 119 calf policies covering 67,117 units, or about 12,200 calves, and $12.5 million in liability. The 2015 totals were 112 policies covering 85,323 units, or about 15,215 calves, and $22.1 million liability.

Calf contracts are only available in spring because most of those calves are sold in fall when there is enough market activity to determine settlement prices. They are based on weekly auction market reports from across the Prairies and reflect the average price of a 600-pound steer.

Settlement tables for the calf program start coming out September 6 and every Monday thereafter until December 19. A claim on all or parts of the insured weight can be triggered anytime during the four weeks leading up to the close of the contract, or the full contract can be left to expire. This way, producers can take advantage of upturns in market prices.

Feeder and fed contracts are available year-round because there is enough weekly market activity to generate settlement prices.

“Feeders have been working with margins for a long time and naturally they want to lock in positive margins. It’s hard to do business when we are talking about locking in negative margins. The challenge becomes one of minimizing losses. WLPIP is still a program that can do that without locking in an upside and you know exactly what it will cost. With futures, contracts require margin money plus margin calls if prices do go up,” Hoar explains.

The WLPIP is a pilot project set to expire March 31, 2018, unless it is included in the next five-year agriculture policy framework.

To date, the Canadian Cattlemen’s Association and western producer associations have called for it to become a permanent program.

Individual producers will be asked to weigh in on the WLPIP in a survey this fall as governments begin to review the feasibility of continuing the program.Hoar says the review will also evaluate the cost of delivery and whether the program effectively meets producers’ risk-management needs.

For details on the program, go online or call your provincial co-ordinator toll-free at 844-782-5747 for British Columbia and Manitoba, 888-935-0000 in Saskatchewan, and 877-899-2372 in Alberta.

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