What is the Western Livestock Price Insurance Program?
The Western Livestock Price Insurance Program (WLPIP) is a risk management tool, allowing producers to purchase price protection on cattle and hogs, in the form of an insurance policy. Available in British Columbia, Alberta, Saskatchewan and Manitoba, the program provides producers with protection against an unexpected drop in prices over a defined period of time.
A collaborative approach
WLPIP is built on the experience and expertise Alberta has gained since initiating livestock price insurance in 2009. In 2012, all four western provinces along with the federal government analyzed the potential for expanding the Alberta program to all Western producers. It was determined that all Western producers would benefit from having access to this risk management program and there were considerable cost savings and efficiencies to be gained by expanding Alberta’s existing program to the other Western provinces. Through the Growing Forward 2 AgriRisk initiative, the four Western provinces and the federal government have created a unique collaborative approach to delivering an important risk management program for livestock producers.
How did WLPIP begin?
The WLPIP began as a producer-driven initiative and was initially developed under the guidance of Alberta Beef Producers, with the aim of enhancing Alberta cattle producers’ ability to manage their price and basis risk.
When introduced, these were the first programs of their kind in Canada, providing producers with a range of coverage and policy options to help manage price risk by providing an insurable ‘floor’ price on cattle. This caught the attention of producers in the Western provinces. Realizing the support a Westernized program would have, governments began discussions to expand Alberta’s program to more provinces in 2012.
Currently, there are few truly effective risk management instruments that allow Western Canadian livestock producers to manage their risk. Cattle and hog producers in Western Canada face volatile market prices. Due to this volatility, price, currency and basis risk can be hard to manage. WLPIP is designed to be market driven to reflect the risks a producer in Western Canada faces.
Livestock producers are typically ‘price takers’, with prices varying greatly year to year, due to many factors impacting the market. Having a tool available to help protect against the ‘unknowns’ of the market and associated price volatility can assist a producer with being more profitable.
How does it work?
Producers pay a premium to receive forward price coverage; if the market price falls below the coverage price, in the time frame selected, the producer receives a payment. These programs are flexible and market-driven. They take into account price risk, currency risk and basis risk.
Price Insurance Steps:
- The producer will purchase insurance based on the expected sale weight.
- The producer will match the policy length to the time period they expect to sell.
- The producer will choose their coverage and pay the premium.
- The producer now has a protected floor price.
- In the Calf, Feeder and Fed programs, if the cash market is below the selected coverage during the last four weeks of a policy, the producer can make a claim.
- In the Hog program, if the cash market is below the selected coverage at the expiration of a policy, the producer can make a claim.
- There is no obligation to sell livestock at the time of policies expiration.
There are four insurance products available for producers to select: calf, feeder, fed and hogs.
WLPIP – Calf
The calf product is offered in the spring and covers the price risk a cow-calf producer faces selling calves in the fall market. The settlement index is based on the average price of a 600 pound steer.
WLPIP – Feeder
The feeder product covers the price risk a cattle feeder faces when marketing. The settlement index is based on the average price of an 850 pound steer.
WLPIP – Fed
The fed product is offered year-round for cattle being finished in Western Canada. The settlement index is based on the weekly Alberta fed cattle price, using Canfax data.
WLPIP – Hog
The hog product is offered year-round and offers hog producers protection against a decline in prices over a defined period of time. Hog producers choose from a range of policy lengths and price coverage.
Participation is voluntary and will be available to cattle and hog producers in Western Canada.