Risk management | New program available to hog and cattle producers provides stability
A price insurance program that has proved popular with Alberta livestock producers is now available to cattle and hog producers in all four western provinces.
The Western Livestock Price Insurance Program is designed to protect against roller coaster prices by allowing producers to lock in a minimum price, similar to crop insurance.
Canadian Cattlemen’s Association president Martin Unrau said expanding the program to other provinces will add stability and help the industry to grow in Western Canada.
“The crop industry has had this base, which has allowed them to get lower interest rates on operation loans,” Unrau said when the insurance pilot program was announced in Camrose Jan. 24.
“That will now transfer into the cattle industry. As soon as cattle farmers, feeders, finishers recognize that, they will realize this program is not just getting the payout at the end of the day if the prices fall. It is also about saving the interest rates on the loans.”
The Cattle Price Insurance Program has been available to Alberta producers since 2009 and is a popular risk management tool for cattle producers.
In 2013, 900,000 of Alberta’s three million cattle and 13,000 of the province’s one million hogs were insured by 3,800 cattle and eight hog producers.
Federal agriculture minister Gerry Ritz said the program, which is available for feeder and fed cattle as well as calves, will be reassessed after four years. Insurance on feeder cattle has made up the largest use of the program in Alberta.
Saskatchewan agriculture minister Lyle Stewart said farmers have asked for tools to help offset the volatility of livestock prices.
“By providing livestock price insurance across Western Canada, we will be able to level the playing field insuring all producers have access to an important risk management tool.”
Alberta will be the central administrative body for the program. In Saskatchewan, livestock producers can access livestock insurance through the crop insurance program. Manitoba is part of the program, but was not included in the announcement because of byelections in the province. British Columbia will also be part of the program.
Unrau, former head of the Manitoba Cattle Producers Association, said producers have looked enviously at Alberta’s program since it was introduced four years ago.
“It will be a tremendous, tremendous benefit to us as cattle producers. It is another tool we can use to manage price and basis risk for all the Canadian industry.… This program offers increased stability for the whole industry.”
CCA vice-chair Dave Solverson said expanding the insurance program would end the distortion in cattle markets.
“When a risk management program is only available in one region, it can tend to artificially distort movement in the feeders,” he said.
“This will restore market driven competitive business environment.”
Solverson said he and his brother have insured all the cattle they have marketed for the past two years.
“When the price of feed doubled and one of the major processors was down, cattle price insurance absorbed the volatile price movement.”
He said the unplanned bonus of the price insurance program is reversing the amount of forward contracts that producers sign with processors. Buying price insurance eliminates the need to contract finished cattle and allows producers to take advantage of cash pricing by packers.
“We have been able to insure to the level very close to the contract offered by the packers,” he said.
“This has given us the confidence to leave our cattle available to the cash market. Fed cattle selling this week are returning $10 more than the January contract.”