Saskatchewan cattle producers received a payment due to a major correction when calf prices fell below $286 per hundredweight
MOOSE JAW, Sask. — A strong market correction in October placed cattle producers who bought calf price insurance in a claim position, even though market prices are still high.
Jodie Griffin, program co-ordinator for the Western Livestock Price Insurance Program at Saskatchewan Crop Insurance Corp., said the correction came during the fall run, as it often does, but was more severe than usual.
“It’s a pretty unique situation to see the correction be as harsh as it has been,” she said in an interview.
“Now I would say we have leveled ourselves back out to normal, but with that said, it has been maintaining these producers in a claim position.”
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Under the WLPIP calf program, producers pay a premium to buy coverage per hundredweight on a forward price. They receive a payment if the market falls below that coverage.
Griffin said the coverage offered last spring was higher than the record-breaking prices producers received in the fall of 2014.
Market analysts talked about that year as one for the record books, she said. Futures were up, the cash market was up and red meat in-creased in value. There was short supply and strong demand.
In July, analysts began suggesting the highs were in, but by August it went even higher.
“This market really went high, blowing through every expectation, every forecast,” Griffin said.
The fall run had already started when the correction came.
“It came off gradual for about a week or two and then we saw this major correction happen,” she said.
“This came in hand with all of the cattle that were coming on to the marketplace.”
It also came when the cost of gains was higher than last year for feedlots, she said.
“At the end of the day … it’s still been a really positive marketing period for them as they’ve been selling their cattle at really good profit as well as collecting on insurance,” she said.
Griffin told a Saskatchewan Cattlemen’s Association district meeting in Moose Jaw in late October that producers had been in a claim position since Oct. 5. The major correction came Oct. 12.
This is how it worked.
There are two premium tables and settlement indices: one for Saskatchewan-Manitoba and one for Alberta.
Saskatchewan producers who bought the 20-week calf policy by May 28, which was the last day to buy insurance, were offered top coverage of $286 per hundredweight.
The premium to insure 600 lb. calves was $21.78 per head for the top coverage.
Producers have a four-week window in which to make a claim. In this example, the first claim week was the Sept. 28 index and a price of $294.54. The market was still higher than the coverage level so the producer would not have made a claim.
In the second week, the settlement price dropped to $280.82, which triggered a claim of $5.18 per head.
“He could have chosen to settle a portion of the weight that he has in his policy or he could have settled all of the weight,” Griffin told the meeting.
The third week was the Oct. 12 settlement date, when the major drop occurred. The settlement price was $269.83, or $16.17 per cwt. Again, the producer had the choice to settle or not.
However, in the fourth week the policy settles automatically against the remaining weight or all the weight if there had been no earlier claim. There is no access to the earlier prices.
This year, that fourth week settlement price was $274.98.
Griffin said the feeder program was also paying out at the same time, as was the Alberta program.
“The program is proving to be market driven and reflective of what’s currently occurring for you as a producer in this region.”
The pilot program recognizes regional differences because there are times of the year when the markets are quite different.
Alberta administers the entire program, so the fall time change has affected when premiums and settlements are published.
