For 2023, AFSC is doubling the low yield threshold to allow for additional cereal or pulse crops to be salvaged for livestock feed. For example, the barley crop threshold will be increased from 150 to 300 kilograms per acre.

This adjustment enables producers to act swiftly to salvage crops for livestock feed rather than watch fields deteriorate further and risk harvesting nothing.

The pre-harvest process remains the same for clients and they should contact AFSC at least five days in advance of starting the work.

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Cattle prices have risen steadily over the past 12 months and are approaching the highs seen in 2014 and 2015, said Ben Hamm, an official with Manitoba Agriculture.

“We saw some significant profitability in 2014-2015,” Hamm said at a recent cattle producers meeting here. “We never dreamed that we would get there, and we’re getting close to those same levels again.

“We did go a little bit over three bucks in 2014–2015. Right now, we’re still only seeing $2.90 (cwt) for calves that are coming up for the fall. We are within 10 cents of the highs.”

Locking in those prices is a “tremendous opportunity for profitability, “ he said.

Livestock Price Insurance, which is available to producers in Western Canada, is essentially hedging against a price drop.

“This program is fun to talk about when you’re on the highs because that’s when you should be protecting your profits, because that’s when you have a long way to fall,” Hamm said in an interview.

The size of the North American cattle herd has been decreasing for a decade, and while a similar supply crunch pushed prices higher in 2014–2015, there are a lot more factors impacting the market now, he said. Prices remained high for nearly two solid years during the last peak, but there’s no guarantee that we will see that kind of longevity this time around.

“We have a lot of inflationary pressures right now,” said Hamm. “There’s concern that people may start balking at the price of beef in stores, and that could affect demand.”

Moreover, input prices have also soared.

Producers have said in the past that they don’t like paying out what they see as hefty premiums, calling it a risky proposition. However, not taking price insurance is a risky bet that prices won’t fall substantially, he said.

“We’ve kind of been trained to always wait for tomorrow and see if it’s better,” said Hamm. “I think we need to get away from that and get as many days of protection as we can.”

Livestock Price Insurance opened for calf sales on Feb. 1, and Hamm recommends locking in some of the first days of premium offerings.

“I would really be encouraging guys to lock in as many days of coverage as they can,” he said. “Because if they wait until May, they’ve only got three to four months of actual coverage left.”

However, the insurance is a little pricey, he admitted in the interview in early February.

“Right now, we’re at about $7 cwt for those calves. If you’re putting on a 600-pound calf, it’s about $42 on some of the higher premiums,” he said, noting that those prices change daily. “But $40 isn’t so bad when you have $300 to $400 of profitability in there. So that’s something to keep in mind.”

And if the price is still too steep, Hamm recommends considering a lower coverage level.

“We are still profitable at $280 cwt, and the premium is half (about $3 cwt on average),” said Hamm. “So $3 cwt for a 600-pound calf works out to $18 a calf — still a very profitable level. We can go down to $270 cwt, and it drops by about half again.”

AgriStability is also worth a second look today, said Hamm, calling it is massively under-utilized by cattle producers.

“It’s unfortunate; AgriStability has gone through cycles, and what really frustrated cattle producers was the reference margin limiter. And I don’t blame them for being frustrated about that because that really slashed our coverage.”

However, the reference margin limit has been removed.

Another complaint about AgriStability is that a lot of cattle operations hover just north of the break-even point. The program, by design, works best with operations that go through boom and bust years and only pays out on a large margin decline. If your reference margin (calculated by using the average of the margins over the past five years, excluding the years with the highest and lowest margins) is right around the break-even point, the payout won’t be very big.

But with the high prices and profitability in the cattle market right now, Hamm said this is a perfect time to sign up.

“This is a time when we should be getting in to ensure that margin is there to cover you when the time comes,” he said. “The reason I’m such a fan of AgriStability is because it is whole-farm coverage. Having said that, there is some detriment to being diversified. If one industry does well and the other doesn’t, it does balance out.”

“But as a whole farm, if you are still protecting a profitable farm — which we are all in the business of doing — I just don’t understand why it hasn’t taken off a bit more.”

However, he added, it’s not enough to take the forms to an accountant and hope they’ll get you the best deal.

“You do have to understand a little bit about your accounting; everyone needs to step up their game and understand what calculation of program benefits. When they’re just letting their accountant do it all and never looking at their calculations, reporting, or benefits, and they just throw up their hands and say, ‘I don’t like the program, because it doesn’t pay,’ that’s the most frustrating thing for me.”

In Alberta, both Livestock Price Insurance and AgriStability are delivered by Agriculture Financial Services Corporation. There are links to the programs on its website.

– This article was originally published at the Manitoba Co-operator.

The post Now’s the time for a second look a cattle price insurance, says expert appeared first on Alberta Farmer Express.

The changes include a move to monthly payments for Moisture Deficiency Insurance, an increase in the reseeding benefit compensation rate, the addition of a bear predation pilot project (for hives and bees) to the Wildlife Damage Compensation Program, increased coverage for Straight Hail Insurance and the cancellation of Satellite Yield Insurance. 

The shift to monthly Moisture Deficiency Insurance payments is expected to put money into producers’ hands when they need it, allowing them to be proactive during dry periods and buy feed or take other immediate steps, AFSC said.

Similarly, the addition of a bear predation pilot project to the Wildlife Damage Compensation Program will allow beekeepers to recover more quickly after bear damage to their hives. Updates to the reseeding benefit compensation rate are designed to make it more reflective of current reseeding costs. 

The other major change is cancellation of Satellite Yield Insurance. 

“Technical issues with the acquisition of satellite data for 2023 and beyond make the continuation of this program impossible,” said CEO Darryl Kay. “Satellite Yield Insurance was only available in certain locations in the province, and we will be contacting the affected clients to discuss the cancellation of the program and review their insurance options.”

Producers who have taken this insurance in the past will be able to transition to Moisture Deficiency Insurance, which has similar coverage levels, AFSC said.

Last summer’s intense hailstorms affirmed the need to ensure hail coverage meets the needs of all producers, including market garden producers, AFSC said, so it is increasing Straight Hail Insurance maximum coverage limits. 

The post Insurer moves to monthly drought coverage payouts appeared first on Alberta Farmer Express.

A study by the Agriculture Financial Services Corporation found that farms with higher soil organic matter have better yields and lower crop insurance claims.

In the region between Edmonton and Red Deer, AFSC researchers divided fields according to the level of soil organic matter. The fields with above average levels produced an average 71.5 bushels of barley per acre last year, while the below average ones yielded just 59.5 bushels. It was a similar story with canola.

Those are significant findings, said Stuart Chutter, a product coordinator with the crop insurer.

“If we look at what we paid out in indemnities over the last 21 years – so from 2000 to 2021 – 50 per cent of the insurance payouts we make are due to drought conditions or water limitations,” he said. “So anything that reduces drought risk is very important to crop insurance.”

Payout numbers from the fields studied in 2021 back that up.

“We paid above-average soil organic matter fields $24 an acre, but below-average fields, we paid them more than double,” said Chutter.

However, he stressed there are no plans to link crop insurance premiums to organic matter levels and AFSC is talking about its research only to foster a discussion in the farm community.

[READ MORE] Give cover crops a shot and have some fun, says soil health expert

However, he also noted that USDA research indicates a one per cent increase in soil organic matter can increase soil water holding capacity by around 25,000 gallons per acre. That’s equivalent to one inch of rain, he said.

“It’s basically a margin of safety that keeps things going in (dry) periods,” said Chutter. “So instead of plants being stressed and slowing their growth during dry conditions, there’s a bank account of safety from extra water holding capacity.”

That increased capacity also means that during periods of excessive moisture, there will be less runoff and/or pooling.

“When it comes to excess moisture and unseeded acreage with crop insurance, if that moisture is being held in the soil as opposed to pooling in your low spots, that land can get seeded,” said Chutter. “It can be productive. It can generate profits for the farm and prevent unseeded acreage claims.”

Looking ahead

Chutter said the subject will be part of future analyses.

“That subject has created some hesitation or comments back from industry. Is there land that when priced individually is too risky? What are the social impacts of that? Is that desirable? Perhaps. Or perhaps not. That’s a great question. Are we reliant on that land for food security and production in the economy or should it be grassland, perennial cover, or something else?”

There are also technical questions to address, including how AFSC would determine organic matter levels for every field across the province that it insures.

“A lot of this hasn’t been solutioned,” said Chutter. “This is preliminary research to engage industry, to have those sorts of discussions.”

It’s a topic that should be discussed, said Jason Lenz, who farms near Bentley and is vice-chair of Alberta Wheat.

“Certainly, the science behind this is very proven,” he said. “Soil with higher organic matter holds moisture better. It makes better use of nutrients that are in the soil, and it is just overall better for crops and soil health in general.

“It’s very innovative for AFSC to be thinking this way.”

Innisfail area producer Wade McAllister also praised the insurer for examining the issue but noted that crop insurance and risk assessments are complex topics.

He pointed to his farm, saying it is blessed with high organic matter levels (seven to 11 per cent) but weather and location are also major factors.

“We never have a crop insurance claim unless it’s hail,” he said. “I don’t know if it has a lot to do with organic matter. It has a lot to do with weather and the region you live in, because anybody down south, they can be in a crop insurance claim three out of five years.”

McAllister said crop and hail insurance on his family’s farm is about $35 to $40 an acre, but is thankful it exists after hail wiped out most of its fields this year – the most damage in the 132 years of the farm’s existence.

“I am going to fill probably six out of the 30 bins that we have,” he said.

Another issue with using organic matter levels as part of the premium calculation is the time it takes to increase those levels. The McAllisters, for example, went to no-till more than two decades ago but stewardship efforts like that take a long time to boost organic matter levels.

“That’s a multi-year process to gain small percentage points in your soil organic matter,” said Lenz. “That means long-term planning and long-term sustainability of your farm if that’s your goal to build organic matter.”

On the other hand, the prospect of having lower premiums – a benefit that would recur every year – could be an additional incentive to use practices which increase organic matter levels and avoid those that reduce it.

But first, there needs to be further study before contemplating a premium reduction for fields with higher organic matter, said Chutter.

“From a purely risk-based approach, if the findings of this initial project are true and applicable across the province, then yes,” he said. “If there are increases to soil organic matter that reduced actual risk, internalizing that in the price would lead to a reduction in costs.”

In the meantime, he added, there are other ways to reduce risks to crop production, including more diverse rotations, reduced tillage, earlier seeding dates, and using drought-resistant and early maturing varieties.

The post Should soil organic matter be a factor in insurance premiums? appeared first on Alberta Farmer Express.

“These changes include quick processing of loans up to $200,000, interest-only payments for up to 24 months, up to 60-month loan amortization and flexible collateral considerations,” said Jason Turner, the crop insurer’s lending manager.

Cattle producers who already have loans are encouraged to call AFSC if they want to look at interest-only payments, payment deferrals or re-amortization, he said. They should speak to a lending relationship manager.

Call 1-877-899-2372 or go to afsc.ca, the insurer said.

The post Lending terms for ranchers appeared first on Alberta Farmer Express.

“Agriculture is filled with unpredictable events, including the weather,” said Ken Handford, senior product co-ordinator. “Alberta’s seemingly unpredictable summer weather means farmers face a risk of lightning strikes or accidental fire damaging their crops. However, many of AFSC’s insurance offerings include protection against losses related to lightning and accidental fire.”

Clients with hay, export timothy hay, or annual crop insurance and processing vegetable insurance are covered when insured crops suffer production losses due to fires caused by lightning. Total production must be below insured coverage, and losses are measured and paid at the end of the year on a post-harvest assessment.

For annual crops with hail endorsement, clients have spot-loss coverage due to accidental fire and fire due to lightning. Annual crop or hay fields insured under straight hail insurance have the same spot-loss coverage as hail endorsement.

Coverage ends when the earliest of the following occurs:

• The crop is harvested or put to another use;
• The crop is abandoned because of no harvest value;
• Midnight Oct. 31.

Clients have 14 days to report fire damage to AFSC under hail endorsement or straight hail insurance.

Pasture losses

Spot-loss fire payments compensate clients for production losses in the current year as well as the following year, as it is recognized burned land usually takes at least two years to recover. Coverage ends Feb. 28 of the year following the growing season. Clients must notify AFSC within 14 days of the start of the fire on pasture acres.

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There are two other farmers on the seven-person board: Pine Lake cattle producer and board chair Kelly Smith-Fraser and Rodney Bradshaw, a vegetable producer in Red Deer County.

The other board members are Calgarians (forensic accountant Chioma Ufodike and Renata Colic, who works in finance and investor relations).

In addition to crop insurer, the provincial Crown corporation also provides loans and handles disaster assistance programs.

The post Farmers a majority on AFSC board appeared first on Alberta Farmer Express.

“An average 1,500-acre Alberta farm growing a mixture of crops will see increased premium costs of approximately 54 per cent for annual insurance and hail endorsement,” Agriculture Financial Services Corporation said in a rate announcement last month.

A farm that size with a crop mix of 37 per cent canola, 28 per cent spring wheat, 22 per cent barley, and 13 per cent yellow peas would pay $52,027 in premiums — a hike of more than $18,000, according to AFSC’s example in the rate announcement.

But the biggest chunk of that increase isn’t because of last year’s drought — even though AFSC now expects to pay out a whopping $2.7 billion to cover insured crop losses, said Emmet Hanrahan, the insurer’s vice-president of product innovation.

“The biggest story is the commodity prices,” said Hanrahan. “We’ve seen commodity prices go up by close to 40 per cent year over year. That means basically the coverage increases, and you have to pay more premium to secure that coverage.”

In the case of the theoretical 1,500-acre farm with the above crop mix, coverage would be nearly $731,000 — versus $532,000 a year ago (or 37 per cent more).

“This is the coverage a producer can buy, which is driven directly by the pricing for commodities,” said Hanrahan. “That has increased substantially, so now a producer has to buy more premium to secure that coverage.”

But there are other factors that go into setting premiums, and the drought was a big one.

A year ago, AFSC said its insurance crop fund reserve had grown to the point where it expected it could cut premiums by 20 per cent for five years. But “record claim payments, the highest in its history, have resulted in a significant decrease in the fund reserve,” the crop insurer said in its rate announcement.

“The underlying premium rate has increased 10 per cent,” said Hanrahan. “It could have increased a lot more, but the methodology caps it at 10 per cent. That increase is driven by the decrease in the fund balance, and the 20 per cent premium discount not continuing.”

Individual circumstances matter, too.

Past claims can raise an individual farm’s premiums — something AFSC calls “adjustments” — while being claims free can lower them. That can increase or decrease premiums by as much as 38 per cent, based on a 15-year rolling average that is updated annually.

However, last year’s claims won’t affect this year’s premiums.

“There’s actually a lag in looking at the individual’s discount or surcharge that a producer might get put on their premium — 2021 doesn’t come into that calculation until we calculate 2023,” said Hanrahan.

“We limit the amount that a surcharge can increase in one year — this time to 15 per cent. The methodology promotes stability in the premium that the producer is paying. The premium surcharge or discount can be as much as 38 per cent, but it won’t change in any given year by more than 15 per cent.”

Producers can reduce their insurance cost by opting for a lower coverage level (which ranges from 50 to 80 per cent), but they should think carefully before doing that, he said.

“The investment that the farmer has to put in the ground before anything even grows is pretty substantial,” Hanrahan said. “When you think about those two things — the actual investment in the dirt and the potential value of that crop — you’re probably wanting to protect that and increase coverage, although it does cost more for premiums.”

The big increase in premiums also affects the province and Ottawa, which cover some of that cost.

“With the increased premium costs, the cost to the province and the cost to Canada have increased also.”

Meanwhile, the cheques to cover last year’s drought losses are still going out the door.

Inspectors are still finishing up the last of the post-harvest inspections, and were expected to be finished soon, Hanrahan said in a March 18 interview, adding about $2.4 billion has been paid out to date.

That’s more than triple the $780 million that AFSC paid out in 2019, which was likely the previous record amount.

“We expect it will be roughly around $2.7 billion when we’re done,” he said. “It is the highest payout we’ve had that I can remember anyway.”

That figure is also far higher than the $1.5-billion estimate given by AFSC chief executive officer Darryl Kay in mid-January.

But once again, soaring commodity prices played a big role, said Hanrahan.

“I should point out that a third of the $2.7 billion has been a variable price benefit, so that was paid out because of the commodity price increases in 2021,” he said. “That’s just a feature of the program. It’s when the spring insurance price moves over the year by more than 10 per cent that the variable price kicks in, and any losses are paid at that higher price.”

The bottom line is that the bottom line — in terms of the reserve fund — has changed dramatically in just one year.

“That crop insurance fund is producers’ money,’ said Hanrahan. “It is the money that they have paid in premiums and governments have paid in premiums, and it’s there to support the programs in years where we pay out more than we collect in premiums.

“At the beginning of 2021, it was sitting at $2.7 billion, and by the end of the year it will be below $1 billion for sure.”

Hanrahan estimated the reserve fund will likely end up in the range of $600 million to $700 million.

That kind of drop will take many years to recover from. In its last fiscal year, AFSC reported a surplus of $26 million; the year before that it had a deficit of $155 million; and the year before that its surplus was $150 million — a net surplus of less than $20 million over the three years.

The post Premiums soar after crop insurer hit by $2.7-billion loss appeared first on Alberta Farmer Express.

Eleven months ago, Agriculture Financial Services Corporation announced it was not only cutting premiums by one-fifth, but would keep the discount for five years barring a “significant wreck.”

But that’s exactly what the drought and intense heat delivered.

“We were in a really strong financial position heading into 2021,” said CEO Darryl Kay. “It was going to be a five-year premium reduction if the system allowed for it. But based on the latest forecast, it does look like it’s no longer possible to offer a discount this year.”

In a typical year, AFSC gets about 3,600 insurance claims — but the 2021 total will be around 8,000 claims, with 5,000 processed as of mid-January, Kay said.

“We’re still working on forecasts and final projections,” said Kay. “It will be the highest payout in our 80-year history. To date, I think we’ve paid out over $1 billion in post-harvest claims, and approximately $500 million hail endorsement claims in the summer as well.

“So combined over $1.5 billion — with a number of claims to process. We know that number is going to be significant.”

Whatever it is, the final figure will dwarf the amount collected in premiums, which Kay has previously said was about $600 million.

“On top of the production losses, we have a program called variable price benefit that pays when the price increases from the spring to the fall. That’s making up a third of our payments as well, so that’s a very significant amount.”

The number of insurance claims is simply “unprecedented,” Kay added.

“We have brought on additional adjusters — we hired 10 adjusters this year, which brings us to over 120 adjusters across the province,” he said. “We will move those adjusters around the province depending on where the need is, so we’re trying to be proactive from that perspective. We’re focusing on some of those post-harvest claims for clients who are feeding grain right now, so we can work through that quickly.”

Jason Saunders is one of those producers who filed a claim.

He said adjusters came to his farm south of Taber in October and he received his compensation payment not long after. Mind you, he was done harvest by the end of August, one of his earliest-ever harvest completions.

“This was not my worst year ever,” said Saunders, who is vice-chair of Alberta Wheat. “What made this drought different is that it was Western Canada-wide. There were very few areas that had good crops.”

As was the case with many producers, things didn’t look bad at first on Saunders’ cereal, pulse and oilseed operation.

“It was a drier spring with a lot of wind, which did not help very much,” he said. “We did start out OK, which is how we ended up with some crops.”

Yields for his lentils and flax were only down about a quarter from usual, but other crops on his dryland operation produced only about one-third of normal yields.

Although there is still a large number of claims to be processed, the scale of the disaster has to be taken into account, said Saunders.

“I can’t say crop insurance or AFSC didn’t do a decent job,” he said. “They have a job to do (and) manual verification is very time consuming.”

Among the duties of a crop insurance adjuster are to verify the number of acres insured, confirm the acres harvested, and determine the quantity and quality of the crop harvested by sampling storage facilities and reviewing production sales receipts.

Kay said his organization is not only focused on processing the remaining claims as quickly as possible but also on trying to make sure producers are aware of the cash flow advances that they can receive.

“We have tried to reach out to clients — we have about 80 per cent of all our clients in a claim position this year,” he said. “Someone from a branch office should be reaching out to all those individuals who are in a claim position and talking to them about advances. I think over 95 per cent of our clients will qualify for an advance.”

There is also an option called “payment by declaration.”

“It depends on criteria that needs to be met, the size of the claim and things like that,” said Kay. “But there’s an opportunity for us to pay by declaration as well, so we don’t have to do a farm inspection.

“We may come back and do some audits on those, just to make sure everything is accurate, but the focus right now is to try and get cash out to producers on a timely basis.”

In July, AFSC also increased what’s called a low-yield allowance in order to create an incentive for producers by doubling the threshold for salvaging and feeding crops to livestock.

Kay said he is already focused on 2022 — and the prospect that dry conditions will continue in the coming growing season.

“We often have back-to-back difficult years,” he said. “We know that we’ll be looking to get moisture when we move into the spring. So we know that quite often when you finish a year like we just went through that dry conditions persist.”

Kay is urging producers to check out the insurance programs offered by AFSC and call their local office.

(AFSC insurance covers “perils” such as drought, excess moisture, frost and hail and for most crops, producers can select coverage levels of 50, 60, 70 or 80 per cent. Premium rates vary according to crop type, risk area, cropping practice and selected coverage level. Program details can be found at afsc.ca.)

While the drought put “incredible strain” on everyone in the province’s agriculture industry, it also showed its strength and spirit, said Kay.

“Whenever you get through a challenging year, you tend to get caught up in the negative things,” he said. “But for me, it really highlighted the resiliency of producers and our staff.”

– With staff files

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“Kelly Smith-Fraser is well known in Alberta’s agriculture industry as a smart, driven leader,” Agriculture Minister Devin Dreeshen said in a news release.

Smith-Fraser has also served on the boards of Results Driven Agriculture Research and the Canadian Maine-Anjou Association. AFSC is administrating the Canada-Alberta Livestock Feed Assistance Initiative, the $340-million drought aid program.

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