Calf Program Basics

Coverage
Premiums
Settlement Index
Participating Auction Markets
Auction Market Map

The Western Cattle Price Insurance Program (WCPIP) for Calves is intended to insure calves born in the spring and sold in the fall. Producers can tailor coverage to their operation by purchasing price insurance from February to the end of May for intended marketings from September to December.

Features of WCPIP-Calf Price Insurance:

  • Available for purchase between February and the end of May, for settlement from September to December.
  • Policy lengths range from 16 to 36 weeks.
  • For each policy length, a range of insured indices (coverage levels) are offered, which correspond with a premium. Coverage levels typically range from 75% - 95% of the expected forward price for each policy length. These coverage levels and premiums change on a daily basis in relation to various market factors.
  • Policies are purchased based on expected sale weight of the cattle, in terms of hundredweight (cwt). One hundredweight is equal to 100 pounds. There is no weight minimums required to complete a purchase.
  • The claim window is the last four weeks of the policy*.  In each of these four weeks, a producer can compare their purchased coverage to the settlement index and decide whether to make a claim. There are no weight minimums to file a claim, so a producer has the flexibility to claim a portion of the insured weight in each of the four weeks of the claim window. There is no obligation to sell the cattle to make an insurance claim, although the intention of the program is to match policy length and claims to actual cattle sales.

*policies nearing the end of a blackout are not guaranteed 4 weeks of claim. 

  • If the producer sees a settlement index which is below the insured price of their policy, they can choose to make a claim for all or some of their insured weight on that policy. If for any reason all of the insured weight is not specifically claimed by the producer, the policy will automatically expire at the end of the last week of the policy and the settlement index relevant to that week will be used.  Indemnities are owed if the settlement index settled against is less than the coverage purchased.

Coverage

WCPIP-Calf is a market driven program that uses several factors to forecast a future calf price.  During the period, when policies can be purchased, the coverage offered is calculated Tuesday, Wednesday and Thursday using market data from each given day.  This coverage is driven by the daily feeder forecast (including currency and basis) and is influenced by the current and historical calf to feeder price spread, the current and historical price of barley. After determining the future calf price, the coverage offered begins at 95 per cent of that forecasted price.

Coverage factors:

  • Chicago Mercantile Exchange Feeder Cattle futures
    • The nearby futures data for each policy length is used to calculate a forward U.S. price of feeder cattle.
  • Canadian Dollar
    • A forward currency exchange is used to convert the forward U.S. feeder price into Canadian currency.
  • Basis
    • The Canadian valued forward price is then adjusted for basis which involves the historical, current and future market conditions.
      • The basis is calculated for the policies expiry week by comparing the average of the feeder cattle price settlement index over the last three years to the average of the Chicago Mercantile Exchange feeder cattle nearby futures during the previous three years.
      • This calculation assumes the basis will eventually return to the three year average but also takes into account the current cash to futures basis.
  • Feeder to Calf Spread
    • A spread is calculated by subtracting the feeder price from the calf price. The current spread is compared to the five year average spread for the policy length being purchased.
  • Barley Price
    • The current price of barley is compared to the five year average price of barley.

By taking into account each of these factors, producers have a market driven forward price coverage they can evaluate and use to help manage the risk of marketing calves in the fall.

Premiums

One of the most important factors influencing premium is volatility of the market.  If cattle prices are highly volatile, then WCPIP premiums will be more expensive than when the market is quiet and prices are relatively stable.   If cattle prices are highly volatile, traditionally there is a greater interest in purchasing price protection.  As a result the premium is higher to compensate for the increased risk of a payment.

The premium for a WCPIP policy is reflective of the probability of a payment or indemnity being paid.  The longer the life of the policy, the more chance there will be a payment, so all else being equal, the greater the WCPIP policy length, the higher the premium. Similarly, the higher the coverage, the more likely the policy will result in a payment, so all else being equal, the higher the coverage level, the higher the premium.

WCPIP Premium Factors

  • Forward Feeder Cattle Price – There is no forward looking estimate for calf prices in North America so the feeder cattle futures traded at the Chicago Mercantile Exchange (CME) is used.   For WCPIP, CME futures prices are used to establish a forward price for feeder cattle which is then converted to Canadian currency and adjusted with a basis projection, feeder to calf spread, and barley price. 
  • Volatility – There is no options market for calves in Western Canada to determine price volatility.  The only forward looking estimate for the volatility of feeder cattle prices in North America are the options on feeder cattle futures traded at the CME. The premium calculation uses the implied volatility obtained from the CME options market.
  • Coverage Level –WCPIP price insurance coverage levels begin at 95 per cent of the forecasted calf price.
  • Time – The number of weeks from the day the policy is sold until the expiry date (generally between 16 and 36 weeks in four week increments).
  • Interest – A fixed interest rate is assumed throughout the life of the policy. Interest rates are based on the Bank of Canada treasury bills.

WCPIP-Calf Calculation of Settlement Index

The WCPIP-Calf program creates a settlement index based on weekly data collected from auction markets across Western Canada. From this data, a settlement index is made publicly available on Mondays (Tuesday when Mondays are a holiday).

The settlement index is representative of the average price of a 600 pound steer in any given week. The index is calculated by:

  1. Collecting data from auction markets using the sales information for steers in the weight range of 550 to 650 pounds.
  2. In order to ensure the settlement index represents an average quality steer, animals sold in one or two head lots are not included.
  3. Sale data will be included if there are five or more lots sold in one particular sale. The average price is calculated and lots which have values which are 12 per cent greater or lower than the average daily price are excluded. If there are fewer than five lots sold during a sale that data is rolled forward to the next sale day. This ensures the index is reflecting current market conditions.
  4. A weekly average is then taken using all sale data from Monday to Saturday.
  5. If fewer than 1,000 head are sold at all reporting auction markets in a given week, a settlement index may not be available immediately.

While WCPIP-Calf policies are not settled against the exact price the policy holder may have sold their calves for, by having a large number of auction markets participating in the program, the settlement values reflect the market conditions of the week. If you sold calves at one of the participating auction marts during the claim window, your calf price is being included in the settlement index.

Auction Markets currently participating in the WCPIP-Calf program include:​

Saskatchewan  Alberta

Cowtown Livestock Exchange Inc., Maple Creek

Northern Livestock Sales, Lloydminster

Northern Livestock Sales, Prince Albert

Heartland Livestock Services, Yorkton

Heartland Livestock Services, Moose Jaw

Heartland Livestock Services, Swift Current

Heartland Livestock Services, Assiniboia Livestock Auction

Heartland Livestock Services, Weyburn Livestock Exchange

Mankota Stockmen’s Weigh Co. Ltd. 

Whitewood Livestock Sales 

Saskatoon Livestock Sales 

Meadow Lake Livestock Sales 

Spiritwood Stockyards (1984) Ltd. 

Kelvington Stockyards

 


Manitoba

Winnipeg Livestock Sales

Interlake Cattlemen’s Co-op Association, Ashern 

Gladstone Auction Mart

Heartland Livestock Services, Virden 

Heartland Livestock Services, Brandon 

Killarney Auction Mart

Pipestone Livestock Sales Ltd

Ste Rose Auction Mart
 

Olds Auction Mart Ltd. 

Southern Alberta Livestock Exchange Ltd.,Ft. McLeod 

Stettler Auction Mart (1990) Ltd. 

Thorsby Stockyards Inc.

VJV Auction, Ponoka

Medicine Hat Feeding Co. 

VJV Auction Rimbey

VJV Auction Westlock

VJV Auction Beaverlodge 

Viking Auction Market Ltd. 

Calgary Stockyards Ltd. 

Dryland Cattle Trading Corp.,Veteran

Foothills Auctioneers Inc., Stavely

Balog Auction Services Inc., Lethbridge

North Central Livestock Exchange, Clyde

Provost Livestock Exchange

Burnt Lake Livestock Mart, Red Deer

North Central Livestock Exchange, Vermilion

Innisfail Auction Mart

Bow Slope Shipping Association, Brooks

DLMS Electronic Sales

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