For an analysis of how to use CPIP, see page 16.
Alberta’s Agricul ture Financial Services Corporation (AFSC) has launched Canada’s first-ever fed cattle price insurance program. AFSC says the risk management tool is designed to protect against swings in basis widening and full price insurance. The program is designed to be self-sufficient with no government subsidy or top up.
“By insuring an Alberta price for their fed cattle, CPIP protects Alberta beef producers from basis risk. That’s why the program was created,” Jennifer Wood, CPIP co-ordinator with AFSC said in an AFSC release.
AFSC says CPIP began taking shape five years ago, not long after BSE closed the border to Canadian cattle, when Alberta Beef Producers sponsored initial research exploring the idea. Since then, Alberta Feeder Associations, Alberta Agriculture and Rural Development and AFSC have joined in the development of the program.
While the first CPIP products target finished cattle, work is underway on a yearling product that will extend coverage to feeder cattle “hopefully next year,” said Wood.
CPIP offers Alberta cattle feeders two products: basis-only insurance to protect against a widening basis; and full price insurance, which covers all three components of price risk – the futures price risk, currency exchange risk, and basis. “It gives Alberta cattle producers a minimum price for fed cattle, so they know in advance the minimum they’ll receive once those animals reach market weight,” Wood said in the release.
Lyle Miller, part owner and manager of Highway 21 Feeders, a 20,000-head custom feedlot near Acme, says the basis-only product appeals to him. “We use a
lot of futures and options which leaves our basis open. Until now, the only way to cover basis was to contract with a packer. And at times what packers want to pay can be less than what people think their cattle are worth. That’s where CPIP could offer us some value.”
Miller says price insurance will be attractive to many producers because it covers all of their price risk with one simple tool.
“It’s an alternative to contracting with a packer or just staying in the cash market and crossing their fingers and praying. And with CPIP, they won’t take huge losses from the big price swings we’ve been seeing.”
CPIP premiums are completely producer-funded and based on a forecast of where Alberta fed cattle prices will be when the policy expires, says Wood. Those Alberta forward prices reflect Chicago Mercantile Exchange live cattle futures prices, Canada-U.S. exchange rates, and a forecast of the Canada-U.S. basis. She says coverage levels range from 75 to 95 per cent of the Alberta forward price. Producers can choose policies from 12 to 36 weeks long. “The policy length should match the time it will take their cattle to reach market weight,” Wood said in the release.
To get started, producers must visit their local AFSC office to obtain a username and password giving them secure online access. CPIP transactions can be conducted online, through an AFSC office or the AFSC Call Centre at 1-888-786-7475.
“We’re advising producers to check premium rates and coverage levels frequently because sometimes they’ll look expensive, but a few weeks later, once the markets calm down, that can all change,” Wood said.
More information is available at www.afsc.ca.