Recent weakening cattle prices have triggered some payouts to Manitoba cattle producers enrolled in the Western Livestock Price Insurance Program.
The federal-provincial program was launched in Manitoba in April 2014 to insure cattle and hog prices. While farmers never like lower prices, the good news is the program is helping offset the impact, said Jason Dobbin, livestock price insurance co-ordinator with Manitoba Agricultural Services Corporation.
“Initially farmers wondered if they needed the program when prices are at record highs,” he said. “But markets have declined and the guys who did sign up are getting paid and the program is mitigating their risk.”
Cattle farmers can insure a range of prices for calves, feeders and fed cattle. The higher the price insured, the higher the cost of the premium. Volatile prices also affect premiums for coverage, which range up to 95 per cent of the forecast price.
“Guys don’t understand there are so many coverage levels,” Dobbin said. “They look at the top coverage level and say, ‘I’m not going to pay $70 a head (for price insurance).’ But what they don’t understand is it could range from $10 a head to $70 a head. Our premium is based on volatility in the options market and markets are volatile now.”
Premiums collected are placed in a fund to cover payouts. If payouts exceed the premiums collected, deficits are first covered by reinsurance and if necessary by a loan from the federal and provincial governments.
Under the program farmers select the price they want to insure and when they intend to sell. The price they insure becomes a floor price. A payout is triggered when the weekly average settlement price falls below the insured price. The settlement price is based on auction mart and satellite sales.
“You have three weeks before your policy expires to make a claim (if you’re in a claim position),” Dobbin said. “If you’re in a claim position you can claim as much or as little of your (insured) weight as you want. You have the choice of doing nothing and the program will automatically pay you on the last date (of your insurance coverage).”
Sale timing is flexible
Farmers often wrongly assume they have to sell their cattle at a certain time under the program. They don’t.
The potential payout is based on the difference between the insured price and the average settlement price. The farmer can sell for more than the settlement price and keep it even though they also are getting a payout.
“That’s the beauty of this,” Dobbin said.
Average settlement prices are emailed to farmers every Monday. They might be in a claim position and can decide to make a claim. But if their policy is still good for a week or two and they think prices will go even lower, they can wait and make a claim later. If they were
right, they’ll get a bigger payout. But the opposite is true too — if prices go up they will get a smaller payout. And if they rise enough to match or exceed the insured price, they won’t get anything.
Under the program farmers insure a price per hundredweight (cwt). Farmers insure a total weight of the animals they want covered rather than a specific number of animals. Farmers can insure a minimum of 100 pounds.
You can test drive
Farmers who are skeptical about the program can insure just a few animals to see how it works, Dobbin said.
Here’s an example for a cow-calf farmer in the program based on recent settlement prices:
A farmer insured 1,740 cwt (or 174,000 pounds of calves) at a price of $286 per cwt for total coverage of $497,640. The recent settlement price was $269.40 per cwt for a total of $469,504.20. The difference between the insured and settlement prices was $16.17 per cwt, resulting in a payout of $28,135.80.
The premium cost to the farmer was 3.6 cents a pound ($3.60 per cwt) for a total cost of $6,316.20.
The net benefit to the farmer, less the premium cost, is almost $22,000 or almost 13 cents a pound.
The program, which has operated in Alberta since 2009, has close to 900 Manitoba farmers enrolled currently, Dobbin said.
Farmers who want to learn more about the Western Livestock Price Insurance Program can ask Dobbin to visit them one on one or in small groups.