Hog producers across Western Canada will have access to a price insurance program that has slowly gained popularity among Alberta producers.
The Western Livestock Price Insurance Program is designed to offer cattle and hog producers’ protection against roller coaster prices by allowing them to lock in a floor price similar to crop insurance.
While there has been limited uptake by hog producers so far in Alberta through a similar program, federal agriculture minister Gerry Ritz believes stronger pork prices will encourage greater participation.
“Right now there is big demand and the price is up where it should be. It is as excellent time for hog producers to build the economies of scale that they’re going to need for the next down turn. Hogs are so cyclical. We never see them climb and stay, we never see them go down and stay. There is always that boom and bust cycle,” said Ritz when he announced the expanded livestock insurance program during the Canadian Bull Congress in Camrose, January 24.
Similar to crop insurance, the livestock price insurance allows livestock producers to lock in a base price to help offer protection against fluctuating prices.
“Livestock producers for years have called for programs that are predictable and bankable. Today, we as governments have delivered upon that,” said Ritz.
The pilot program will be assessed after four years to see if it should become a permanent program. It’s based on Alberta’s Cattle Price Insurance Program that was introduced in 2009.
In 2013, 900,000 of Alberta’s three million cattle and 13,000 of the province’s one million hogs were insured by 3,800 cattle and eight hog producers.
The uptake of the program struggled in the early years with only 50,000 head of cattle and only a handful of hogs.
Merle Jacobson with AFSC said hog producers have looked at the premiums for the program as just another bill, but with more stable prices, he expects producers to take another look at the program.
“The hog producers have been challenged with a number of significant losses. They looked at the cost of the premiums,” he said.
Ritz said the increased number of producers enrolled in the program would help reduce the premiums.
“This helps mitigate the premium cost which makes it more enticing to livestock producers across western Canada.”
Saskatchewan agriculture minister Lyle Stewart said he suspects producers in his province will slowly adopt the program as producers learn how it works.
“By providing livestock price insurance across Western Canada we will be able to level the playing field insuring all producers have access to an important risk management tool. This will help attract new young producers to our industry and contribute to the overall growth of the livestock sector,” said Stewart.
“I think we will have a substantial portion of our cattle herd and even our hogs insured in four or five years when producers gain experience.”
Alberta will be the central administrative body for the program. In Saskatchewan, livestock producers can access livestock insurance through the crop insurance program. Manitoba is part of the program, but was not included in the announcement because of by-elections within the province. B.C. will also be part of the program.
Ritz added, “Lyle and I both got an earful of the unfair advantage Alberta has with this program. We know there is interest and we know there will be a significant uptake.”
Martin Unrau, president of the Canadian Cattlemen’s Association said the expansion of the program to other provinces would go a long way to adding stability and help to grow the industry in all western provinces.
“The crop industry has had this base which has allowed them to get lower interest rates on operation loans. That will now transfer into the cattle industry. As soon as cattle farmers, feeders, finishers recognize that, they will realize this program is not just getting the payout at the end of the day if the prices fall. It is also about saving the interest rates on the loans,” said Unrau.
While farmers may look at the premium as just another bill, a reduction of interest rates on cattle bank loads will help offset the costs, he said.
“As soon as we understand that the uptake will be very large.”
Ritz said the program will be reassessed after four years to determine whether to continue the program.
Alberta Agriculture minister Verlyn Olson said all ministers have heard livestock producers want more tools to help reduce the risk of volatile price swings and the original Alberta program has helped Alberta producers.
“It’s proven itself to be a very useful tool. This is a fantastic opportunity to spread this program across western Canada,” said Olson.
Unrau, former head of the Manitoba Cattle Producers Association said they have looked enviously at Alberta’s program since it was introduced four years ago.
“We were jealous of you in Alberta when it came out. It’s important we are on a level playing field when it comes to raising cattle in Canada.
“It will be a tremendous, tremendous benefit to us as cattle producers. It is another tool we can use to manage price and basis risk for all the Canadian industry,” said Unrau.
“This program offers increased stability for the whole industry.”
Dave Solverson CCA vice chair said the expansion of the insurance program would end the distortion of the markets created by Alberta.
“When a risk management program is only available in one region it can tend to artificially distort movement in the feeders. This will restore market driven competitive business environment,” said Solverson.
“It’s a very functional program,” said Solverson, who, along with his brother, has insured all the cattle they have marketed for the past two years. “Those of us who had our cattle insured in the fall of 2012 benefited greatly. When the price of feed doubled and one of the major processors was done, cattle price insurance absorbed the volatile price movement,” he said.
The unplanned bonus of the price insurance program is the reversal of the amount of forward contracts signed with processors. Buying price insurance eliminates the need to contract finished cattle with the company and allows livestock producers to take advantage of cash pricing by packers.
“We have been able to insure to the level very close to the contract offered by the packers. This has given us the confidence to leave our cattle available to the cash market. Feed cattle selling this week are returning $10 more than the January contract,” said Solverson, of Camrose.
“I am a strong supporter of cattle price insurance and it’s nice to see it expand.”
Alberta cattle producer Kelly Olson said he hasn’t used the price insurance yet on his cattle operation.
“I should have probably, but I didn’t. I felt we were on a rising market. I just was fairly confident in the market, probably a little over confident.” •
— By Mary MacArthur
