Tom is an Alberta-based hog producer who is looking to insure 200 finished hogs in the Western Hog Price Insurance Program (WHPIP). Tom plans on selling his hogs in western Canada. He sees that he has the option to insure off of 3 geographically based Index tables. Tom selects AB_Red Deer as his intention is to sell in Alberta. Tom would like to know how much it will cost him and how much coverage he will have. Tom has an expected sale time as August. His finished dressed weight for hogs is 220lbs (approx. 100kg).
Tom plans to market 400 hogs in August and is looking at buying an August 2014 policy from the AB_Red Deer table.
|200 head x 100kg||
|200ckgs x Premium $9.88/ckg||= $1,976.00 cost to insure|
Tom would also like to know how his settlement works.
Let us assume August has come around and the Settlement price is $218. The settlement price is below the insured price purchased resulting in an indemnity owed to the Tom.
= 200ckg x (Insured Index of $220 – Settlement value of $218)
|* No Indemnity Owed = If the settlement value is higher than the Insured Index Tom will not receive a payment.|