SASKATOON – Preliminary Saskatchewan research into a cattle price insurance program shows the idea could work, says a provincial cattle analyst.
Grant Zalinko told producers at the Saskatchewan Beef Industry Conference that more technical work must be done but the analysis so far indicates this type of program, which essentially guarantees a floor price, could help manage price risk.
No decision has been made to proceed.
Saskatchewan undertook the study last summer after Alberta launched its program for fed cattle and the Canadian Cattlemen’s Association pitched a national program.
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Zalinko presented his findings at the conference in January.
“We feel that our preliminary study indicates that the concept of cattle price insurance is technically feasible,” he said.
“We believe that a national cattle price insurance program should be developed to avoid disparity between provinces.”
The idea is to develop an insurance program that would allow producers to pay a premium to buy a certain level of coverage based on estimated forward prices.
Premium costs would vary with the price levels selected.
The policy would cover a particular time period, possibly a two- or four-week marketing window in which the producer intends to sell the cattle.
If the producer sells at that time and the price he obtains is below the estimated price in the policy, a payment is made for the difference. If the price is higher, there is no payment.
“Settlement is based on a weekly provincial average price,” Zalinko said.
The price a producer gets at an auction mart would not necessarily trigger the payment depending on what the provincial average is, he explained.
Zalinko, with help from Alberta officials and consultants Gibson Capital, developed three models for calves, yearlings and fed cattle.
Now, he said, the models must be validated with real, historical price data and sales volumes to define the risk periods for the different classes. One possibility would see Saskatchewan fed cattle producers in the Alberta program.
Producers at the conference wondered if they would get government help to pay premiums, similar to crop insurance programs.
That would depend on whether cattle price insurance becomes a national program.
“At the moment the answer is no, but they are looking at it,” said Bob Ivey, the CCA director who has been working on the concept.
