Margin money | Province pledges to introduce price insurance
Saskatchewan hog producers say a hedging program would work better for them than the price insurance they will be offered early next year, says the general manager of SaskPork.
Neil Ketilson said the Canadian Pork Council has been asking for a hedging program for at least a year.
“The federal government, to their credit, they’ve actually commissioned an actuarial study to review it and try to quantify the risk and determine whether or not it was a feasible option,” he said in an interview.
That report hasn’t yet been released.
Last week the Saskatchewan government in the speech from the throne to open the legislative session announced that a western Canadian price insurance program would soon be available for cattle and hog producers in all four western provinces.
Cattle producers have for years been asking for price insurance.
Alberta in 2009 piloted a program for both cattle and hogs and it is expected the new voluntary program will be virtually the same as what that province offers.
Ketilson said price insurance is essentially an options program and useful in some situations.
“What we understand … the uptake by the hog industry in Alberta was not very big, mostly because the cost of the option was deemed to be too great,” he said.
The program provides policies from two to 10 months, with a range of insured prices corresponding to a premium per 100 kilograms. The insured prices start at 95 percent of the forecasted price for a particular month.
Payments are made when the price in the month the policy expires is less than the insured price.
But the premium cost could be as much as $10 per 100 kg, according to examples on the program website.
Ketilson said producers didn’t see much upside to the program.
“If, for example, the government was interested in cost-sharing that premium as they do crop insurance for grain farmers we’d be very interested,” he said.
“But that doesn’t seem to be on the table. It’s been mentioned but there’s not a lot of traction.”
According to Saskatchewan agriculture minister Lyle Stewart, the proposal currently in the works calls for governments to cost-share the administration of the program but not premiums.
Ketilson said SaskPork supports price insurance as an option and one of many risk management tools that should be available.
However, Saskatchewan, Ontario and Quebec all favour hedging programs.
The latter two provinces have programs but no government support is involved.
“What we’re trying to do is ask the governments to facilitate the access to margin money so that farmers can hedge their product and not have to put up margin money when it’s called for on a continual basis,” Ketilson explained.
“That’s a tool that we think would be more applicable to our industry and would get greater uptake.”
This type of program has little risk but allows many people to participate, he said.