Hog price insurance failing; sector looks for other avenues

The Alberta hog industry is calling for the demise of the western hog price insurance program because it does not work well for producers.

Alberta Pork chair Frank Novak said the program offers insurance coverage when hog prices de-cline, but the high cost of premiums discourages producers from joining.

“The net result is the options products they build for the hog industry are really expensive relative to the cattle industry,” he told Alberta Pork’s annual meeting in Calgary Nov. 5.

“We have come to the conclusion that HPIP is not going to work for us.… It will see a quiet death.”

Alberta Pork worked with Gibson Capital and Alberta Financial Services Corp. to reduce the program’s premiums but could not find a way to keep it actuarially sound while offering reasonable coverage levels.

“It has got to be actuarially sound,” said executive director Darcy Fitzgerald.

“Government just can’t give away money.”

Almost no one has bought a policy since the program began.

“There are good opportunities for us to do other things,” he told the meeting.

The program was offered across Western Canada, and policies were to be bought based on the expected sale dressed weight of hogs, in terms of 100 kilogram units of weight.

The forward price was calculated using the Chicago Mercantile Exchange’s lean hog future with a cash to futures basis adjustment. This price was then converted to a western Canadian equivalent price by a forward exchange rate and a western Canadian factor.

There have been discussions in the past about a made-in-Canada pricing system rather than using the U.S. price.

“This is one of those hard, controversial topics,” Novak in an interview. “It is not dead, and there are people still pushing the idea.”

An ambitious national marketing program has developed that could be supported with a domestic price, but it would need mandatory price reporting from the value of the pork cutout.

“There is a group of us who believe if the domestic marketing thing is going to work and have a program where producers can be compensated based on the value they bring to the table, there is going to have to be a formal mechanism,” Novak said. “Because we have so few buyers in Western Canada, we don’t have a proper functioning marketplace the textbooks say you should have.”

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