Insurance available for a drop in fall calf prices

Producers can insure a minimum price for calves through AFSC’s Cattle Price Insurance Program (CPIP)

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With calving season well underway, Alberta cattle producers are hoping that high calf prices fuelled by tight cattle supplies over the last two years will continue this fall when most calves are weaned and sold. But there are several “unknowns and question marks” on the horizon that have many producers across the province feeling nervous about where calf and feeder cattle prices could end up this year, says Anne Dunford, an Alberta cattle market analyst.

“A lot of the nervousness we’re seeing began last fall when the U.S. drought caused corn and feed grain prices to spike, triggering a major drop in calf and feeder cattle prices,” said Dunford. “Calf prices fell from a record $1.85/lb. in February to $1.55/lb. during the fall calf run last year. That price drop resulted from significant losses that continue today for feedlot operators and backgrounders who are shouldering record feed grain costs. The impact of those losses gets passed down the chain, affecting calf prices.”

The price drop was a classic reminder that tight cattle supplies — the key driver behind today’s high calf and feeder prices — aren’t the only factors that influence prices, says Dunford, noting high feed costs have kept calf prices in the $1.50/lb. to $1.55/lb. range this spring. “Those prices could climb higher if moisture conditions in the U.S. turn around and large corn crops are harvested this fall, causing feed grain prices to decline. But with so many other question marks on the horizon, there are no guarantees.”

Minimum price insurance

All of the uncertainty has sparked a surge of interest in Alberta’s Cattle Price Insurance Program (CPIP), which lets producers insure a minimum price for their cattle, protecting them if prices fall lower while still allowing them to sell their cattle at the highest price.

“Participation has tripled in the CPIP-Feeder program this year and we’re getting substantially more phone calls and questions about CPIP-Calf which is only in its second full year of being offered,” says Stuart McKie, a field analyst with Agriculture Financial Services Corporation (AFSC). Until now, participation in CPIP-Calf has been low. “Because calf prices have been so strong, many cow-calf producers didn’t feel the need for price protection. But that’s changing,” says McKie. “Producers are a lot less confident they’ll make money on their calves this year. It’s all because of the drop in calf and feeder prices last fall that triggered payouts of up to $80 per head on CPIP-Calf and up to $195 per head on CPIP-Feeder,” he says. “The CPIP-Fed, Feeder and Basis-Only programs are still triggering payouts due to high feed costs and other factors.”

McKie points out CPIP-Calf is offered from February to May, and the deadline to participate this year is May 30. CPIP-Feeder, for producers who feed cattle to a certain weight before moving them to a feedlot, and CPIP-Fed, for feedlot operators, are both available year round.

Watch premium tables

Cattle producers who aren’t happy with the CPIP floor prices and premiums being offered today should keep an eye on the premium tables, says McKie. “Those prices change daily as markets fluctuate.” He explains the floor prices producers can insure with CPIP reflect variables such as futures markets, the price of barley, exchange rates on the Canadian dollar, and the basis — the difference between U.S. and Canadian cattle prices. “It covers all those risks in one tool.”

The flexibility of CPIP programs surprises many cattle producers, says McKie. “Especially when we tell them they don’t have to sell their cattle to collect a claim. They can sell the animal later once prices improve. Or if they insure a floor price for November but sell their calves at a higher price in August, they can still collect a payout if prices drop and trigger a claim in November, even though they’ve sold the calves already — as long as they owned the calves for 60 days during the policy.” Claims are triggered when average calf and feeder prices at auction marts fall below their insured price. “At the end of the day, CPIP is revenue protection that lets you lock in up to 95 per cent of the future forecasted price of Alberta cattle. Sometimes the price you can protect will be profitable. Sometimes it will minimize losses. It depends on where markets are that day,” says McKie.

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