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Cattle price insurance premiums reflect risk

News Roundup from the March 2016 issue of Canadian Cattlemen

If you haven’t bought price insurance on your calves through the Western Livestock Price Insurance Program (WLPIP) yet you’ll find the premiums a little higher than last year.

That’s to be expected given the volatility in today’s market, says Bruce Viney, a risk management specialist with Alberta Agriculture and Forestry.

“Volatility is simply a statistical measure of risk and relates to the severity of market price swings,” he says. “These up and down movements largely reflect the uncertainty that market participants have in their forecast of future prices.”

In the current global environment, changing economic conditions around the world can have an instantaneous impact on the perceived future demand for our products, he says.

Recent wild market swings in commodity contracts offered on the Chicago Mercantile Exchange have only added to that uncertainty but making futures markets a less effective and more expensive method of managing price risk.

To remain sustainable, Viney says the market-driven WLPIP must charge higher premiums to offset the higher levels of risk.

Calf contracts can be purchased up until May 31.

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