29 March 2011

3 minute read

North America

But it is cautious optimism as there is plenty of uncertainty over where prices may end up between now and the fall when most calves are weaned and sold as feeder cattle.

The strong prices are being driven by a shrinking cow herd and growing demand for beef, which was hammered hard by the recession – both in Canada and internationally. Alberta’s cow herd has shrunk 20 per cent since its peak in 2005, due to several years of poor prices and high feed costs. The US herd is at 50-year lows. Tightening supplies and improved demand have resulted in a significant price rally for beef.

The strong dollar and high feed costs are also key risk factors that could trigger a sudden drop in calf prices. With last year’s carry-over corn stocks at almost record lows, any issue such as drought or frost that impacts the 2011 corn crop could cause a huge spike in feed costs – taking the bloom off the calf market.

Amidst these many unknowns, Alberta’s new Cattle Price Insurance Programme for calves (CPIP-Calf), could prove to be a valuable tool for cow-calf producers. CPIP-Calf is the third price insurance program unveiled for Alberta cattle producers by Agriculture Financial Services Corporation (AFSC), which administers CPIP on behalf of the provincial government. The new CPIP-Calf programme is designed for cow-calf producers who sell weaned calves weighing 550-to-650 pounds.

“We’ve had strong interest in the Fed and Feeder programmes, and producers tell us there’s a real need for this third program because most cow-calf producers are “price takers” who sell their calves at auction marts in the fall, leaving them at the mercy of prices being offered on any given day,” says Jennifer Wood, coordinator of CPIP programmes for AFSC.

“The average cow-calf producer has very few options when it comes to managing price risk,” adds Ms Wood. “With CPIP, they don’t have to hedge their price risk using futures and options markets. CPIP is a market-driven programme that internalizes those complexities so what producers see is very simple and straight forward. They’re guaranteed an Alberta floor price for the calves they plan to sell in the fall. If prices fall below that point, they’re protected.”

An important feature of CPIP-Calf is that producers aren’t obligated to sell their cattle to make a claim. CPIP-Calf is available for purchase from February to May each year, but must be purchased before May 31. Premiums are market-driven and fluctuate daily based on market volatility. Policies expire during the fall calf run from September to December. Producers choose policy lengths of 16-to-36 weeks depending on when they plan to sell their calves. During the last four weeks of the policy, if the average price of an Alberta steer weighing 550-to-650 pounds falls below their insured price, they can submit a claim.

There is no minimum number of steers or heifers that can be insured with CPIP-Calf, so even the smallest cow-calf operation can participate. The voluntary programme is open to producers at least 18-years-old who file farm income and expenses in Alberta. Producers must own the insured calves for at least 60 continuous days during the policy. All three CPIP programmes have been developed in consultation with the Feeder Associations of Alberta and Alberta Beef Producers, which initiated the research that led to the first CPIP programme. “Now that we have three programmes, the entire Alberta cattle industry has access to price insurance, from the calf to the finished animal,” says Ms Wood, adding that AFSC is now developing a Hog Price Insurance Programme (HPIP). “Alberta hog producers have been watching CPIP with great interest and have been asking for a similar programme.”

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