Beef cattle producers owe it to themselves and their industry to give the Western Livestock Price Insurance Program a chance.
I heard at Manitoba Ag Days last week that farmers should not take the program for granted.
It relies on some government funding from Growing Forward 2, as well as a government guarantee if the program should fall into deficit.
Continued government support would be easier to expect if farmers use it.
Livestock production tends to be more difficult to hedge than crop production, so the WLPIP is a noble attempt to give farmers a way to cut some of their risk. It might not be perfect, but it’s worth at least trying out.
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However, it seems there’s a cultural challenge when working with fiercely independent cattle producers, as industry leaders and program operators keep noting.
Crop insurance is standard for most crop farming, but livestock insurance is inherently trickier with more moving parts.
It doesn’t help that cattle producers are also more likely to back away from anything that isn’t clear and simple. It seems cattle folk don’t like things that are too fancy.
The problem is that any livestock price insurance program needs fancy engineering because it will almost inevitably require the use of U.S. futures contract prices, a conversion factor for the U.S.-Canadian dollar exchange rate and application to the anything-but-simple cattle production system.
Farmers have said they want cattle price insurance available to them, and the WLPIP seems to be a pretty good way of doing it.
That’s what I hear from bright cattle producer leaders such as Manitoba’s Martin Unrau and Tom Tiechroeb, who urged farmers at Ag Days to give the program a try.
Last year offered two lessons. One was that it’s fantastic to have price insurance when the market slumps, as it did at the end of the year. Farmers with coverage taken out in early 2015 did nicely when things went bad a few months later.
The other lesson was that premiums can expand greatly in a volatile market, which also happened late last year.
If farmers are hedging, they’re more likely to see the first scenario: insurance protection coming at a reasonable cost in the normal run of business and occasionally paying out nicely in a market rout.
The second scenario will occur, but will be rare and unlikely to do more than temporarily disrupt a careful hedging strategy.
Beef cattle producers, who generally say they want price insurance available, need to give the WLPIP a chance.
As was noted a couple of times at Ag Days, it’s best to ignore coffee row chatter about temporarily high premiums during a bad patch and focus instead on the financial stability that a standing hedging strategy can provide.
