It’s never too early to think about risk management and target prices for your calves and feeders. Given the major volatility and ongoing uncertainty in the marketplace, having some form of price protection is a good strategy, even if on only a portion of your calves.
During the first week of February, the Livestock Price Insurance Program (formerly Western Livestock Price Insurance Program) started offering calf price insurance for this fall’s calf market. It is available each Tuesday, Wednesday and Thursday until the end of May. As the markets change each day, mainly the futures and Canadian dollar, so will the coverage levels and premium costs. So far the top coverage for steer calves (based on the average price of steers weighing 550 – 650 pounds) was $206/cwt. The cost for top coverage would be around $40/calf. The coverage is lower than a year ago which is mainly a result of the higher Canadian dollar and higher feed costs impacting the feeder futures.
Price Insurance was created to protect producers from a drop in market prices, whether it is market driven (high dollar, high feed costs, weak basis levels) or from an external force such as BSE or COVID-19. It is important to realize the coverage levels are market driven and Price Insurance is a tool for producers to be better prepared for a market shock. The key word is “prepare” as this is not a program built to bail out producers after a market crash if they hadn’t participated, because after a crash it is too late to buy insurance. For example, you can’t buy fire insurance after your house burns down. Last year initial coverage started at $218/cwt, only rallied slightly to $220/cwt before coverage fell dramatically because of COVID-19 concerns. Last year, most producers opted not to buy coverage when it was initially offered, but after the COVID-19 market impact, many wished they had. Typically, calf price coverage does improve in the spring, but there are certainly no guarantees.
Price Insurance provides great flexibility. You can insure any number of calves you like. There is no need to insure all your calves at once, and you can buy insurance incrementally. If you want to have coverage you can buy insurance on a portion of your calves, and you can buy more as the market/coverage changes. You can also buy different coverage levels, whether it is the top coverage, or buy lower coverage at a lower premium to at least protect against a disaster. Furthermore, you are insuring a market price floor, but you have no obligation to sell your cattle to collect your payouts.
For more information about cattle price insurance, visit: www.lpi.ca
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