NANTON, Alta. – A cattle price insurance policy launched in Alberta in September is designed to ease some of the volatility in the beef market.
“Price insurance protects you against a drop in price in Alberta,” said Emmet Hanrahan, project manager of the risk management division of Alberta Financial Services Corp., which is administering the program.
“It is a management tool, but it is not the silver bullet that everybody is probably looking for.”
Program co-ordinator Jennifer Wood said the program should provide protection when unforeseen events occur, such as border closures or the effects of government policies like country-of-origin labelling.
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“If we had been selling cattle price insurance last year, the situation would have turned out in the producers’ favour,” she said at a producer forum in Nanton Oct. 26.
Hanrahan said 140 producers have joined the voluntary program, which offers price insurance to cattle feeders.The program offers price drop protection and coverage against basis changes. Other price insurance schemes are available but none offers basis protection. As well, no administration fees are charged.
Basis is the difference between the Alberta settlement price and the Nebraska cash price. Bruce Viney of Alberta Agriculture said the insurance covers the difference between the U.S. and Alberta prices.
For example, under the price insurance policy, a feedlot operator buys a policy for 200 steers expected to finish in 24 weeks at 1,350 pounds each. He buys coverage of $78 per hundredweight and pays a premium of $1.46 per cwt. according to a published policy table.
The premium costs $3,943 based on the total weight of 200 head multiplied by $1.46. The steers are sold and the settlement price is $75 per cwt., which is $3 lower than the coverage level.
The producer receives a payment of $8,100 based on the weight of 200 animals multiplied by $3 per cwt.
“The more volatile the market is, the higher the premiums are going to be,” Viney said.
Coverage is based on weight of the slaughter cattle rather than the number of head. Cattle have to weigh a minimum of 500 lb. but no total minimum weight is required. Payouts are based on the slaughter price.
They are expected to grade A or better to qualify, and the cattle must be owned and fed by Albertans.
Random audits are done to ensure the cattle exist and are on feed.
The cattle must be on feed for the four weeks before the end of the policy. For example, if the policy is for 12 weeks, the cattle must be on feed from weeks four to eight of the coverage period.
Coverage levels offered
Price insurance offers a choice of coverage levels from 75 to 95 percent of the forecast Alberta price index.
The program is offered throughout the year with policies from 12 to 36 weeks. Coverage levels and premiums are adjusted to market calculations on a daily basis and are published every Tuesday through Thursday.
A weekly price settlement index is published at noon every Monday except on holidays when it appears on Tuesdays.
The program is not a government subsidy because it is paid for with producer premiums. It should not affect Agri-Stability payments.
A producer needs to activate an account but does not have to immediately buy a policy. Policies can be bought Tuesday through Thursday between 1:30 and 5 p.m. either on-line or by contacting local AFSC offices.
Officials are studying programs for yearling and feeder calf policies, which should be available sometime next year.
For more information, visit www.afsc.ca and follow the business management and cattle price insurance links.
