Fluctuating prices are part of farming, but Alberta’s cattle producers have been squeezed more than most in recent years.
Drought, BSE, the high loonie, rising feed costs and the recent global economic downturn have all hit beef producers in the pocketbook — with little they could do to protect themselves.
Relief against future price swings should arrive this summer, with the start of the Alberta Cattle Price Insurance Program.
Announced by Alberta Agriculture and Rural Development in December, the program will be the first of its kind in Canada, said Susan Crump, a senior project manager in policy and program development with Agriculture Financial Services Corp. in Lacombe.
“There is no livestock insurance offered through the government.”
The Cattle Price Insurance Program, or CPIP, will enable producers to ensure a minimum price for their finished cattle. They’ll be able to buy policies for their livestock, with these ranging in duration from 12 to 36 weeks to accommodate different feeding strategies, said Crump.
“That flexibility is just meant to allow people to buy a policy that reflects how they’re finishing cattle.”
Premiums will be determined at the time of purchase, based on price volatility and market conditions, said Crump.
“So sometimes premiums will be cheap relative to market conditions and sometimes they’ll look expensive,” said Bruce Viney, an Olds-based risk management specialist with Alberta Agriculture and Rural Development, in a news release.
“Like any insurance, it will cost less if you buy it before the risk becomes known and markets become volatile.”
Payment or settlement prices will be based on the Alberta average price index, which is calculated weekly. If the market price a producer receives for his slaughter cattle is less than the insured price, they’ll be eligible for payment, said Crump.
Beef producers have been able to hedge against price fluctuations using instruments like forward delivery contracts, futures and options. But Crump said small producers often lack the time and resources to monitor the market to avail themselves of such protection.
“We’re looking at this program being offered to really any size producer,” she said.
Charles Christie, who feeds cattle near Trochu, said in the release that CPIP appeals to him, as a smaller producer.
“The larger guys have more resources to follow the futures market and hedge their risk. We can’t do that.”
Another drawback of market hedging is that commodities futures are usually based on American prices.
“It doesn’t always reflect that risk that we have in Canada,” said Crump.
BSE, and more recently the threat of country of origin labelling requirements in the United States, are examples of situations where Canadian beef prices did not reflect the situation south of the border.
CPIP will be administered by AFSC and fully funded through producer premiums, said Crump.
“It’s a continuous product, so there’s no deadline like crop insurance or some of the other products that we administer.”
In time, said Crump, CPIP might expand to include feeder cattle.
“We are doing some research on that and hope to have that available sometime in 2010,” she said.
Additional information about the program will be posted as it becomes available on the AFSC website at www.afsc.ca.