Cattle backgrounders in Alberta are the second group eligible for a provincial price insurance program meant to insulate against price risk, basis risk and currency risk.
Launched Monday, the voluntary Cattle Price Insurance Program-Feeder (CPIP-Feeder) is meant to complement the CPIP offered in September 2009 to cattle feeders on their finished cattle (CPIP-Fed).
“In purchasing a (CPIP-Feeder) policy, the producer has a known ‘floor’ price for those cattle without limiting the ability to sell them at a higher price,” Agriculture Minister Jack Hayden said in a release.
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The new program, he said, “reflects the needs of industry and gives beef producers a flexible program that is much easier to use than traditional risk management tools.”
Where CPIP-Fed is meant to reflect the risks a feedlot finishing cattle in Alberta would face, CPIP-Feeder — also to be delivered by the province’s Agriculture Financial Services Corp. (AFSC) — uses a “forecasted, market-driven” price to insure cattle being prepared for market, with a settlement index that represents an 850-pound steer.
Participating producers can expect to see insured indices and premium per hundredweight for policy lengths ranging from 12 to 36 weeks, the province said. Past and current premium tables and settlement indices are available online.
By matching policy length to the expected time of sale of the cattle, the producer gets a floor price on those cattle. If the cash market when the policy expires is below the coverage level, the producer is paid on the difference, even in the case of a major market disruption such as a border closure event, the province said.
Feeder price insurance insured indices are calculated by forecasting what the price of an 850-pound steer will be in 12, 16, 20, 24, 28, 32 and 36 weeks. This calculation is done each day CPIP is offered for sale by using the Chicago Mercantile Exchange (CME) feeder cattle futures price, converted to Canadian dollars and subtracting the estimated basis for that expiration date.
The highest insured index offered is about 95 per cent of the forecasted price, the province said.
Settlement
Where CPIP-Fed’s settlement index is calculated using the finished steer and heifer average from CanFax, CPIP-Feeder’s settlement index uses data gathered from participating auction markets in Alberta, which go to calculate the average price of an 850-pound steer in a given week.
The index then uses price data from steers weighing 750 to 950 pounds and sold in lots of three head or more. A slide is then applied to calculate the average price of an 850-pound steer.
Producers won’t have to market their cattle to claim on their CPIP policy, the province said, although AFSC notes the intent of the program is to match policy length and claims to actual cattle sales. Producers will be able to claim in the four weeks before the policy expires, and when the claim is filed, the coverage purchased is compared to a settlement index to see if an indemnity is owed.
Producers wanting to enroll in CPIP-Feeder will need to complete a one-time application form, also available online. Once the application is accepted, producers can purchase and claim online, at an AFSC district office or through AFSC’s call centre.
