LPI - FED - Livestock Price Insurance

LPI – Fed program is market-driven and coverage offered directly reflects the fed cattle market.

Features of LPI – Fed Price Insurance

Eligible Animal Types	Beef heifers and steers
Purchase Availability	Year Round*
Policy Lengths	12 to 36 weeks
Coverage Level Range	95% – 75% of the expected forward price for each policy length
Data Collected for Coverage and Settlement Calculations based on	1,000 lbs+ intended for slaughter and expected to grade A or better
Minimum Weight Requirements	No weight minimums
Claim Window	4 weeks**

*With the exception of blackout period
**Policies nearing the end of a blackout period are not guaranteed four weeks of claim. Please reference the Calendar of Insurance to ensure you select a policy with the appropriate claim window.

Coverage

LPI – Fed program is market driven, coverage offered directly reflects the fed cattle market. Coverage is offered on Tuesdays, Wednesdays and Thursdays using market data from each given day.

Coverage Factors

1. Chicago Mercantile Exchange (CME) Live Cattle Futures
Market-driven-futures data is used to calculate a forward U.S. price for each policy expiry date.

2. Canadian Dollar
Forward-currency-exchange data is used to convert the forward U.S. price into Canadian currency.

3. 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 fed cattle price settlement index over the last five years to the average of the currency converted CME live cattle nearby futures during the previous five years.
This calculation assumes the basis will eventually return to the five-year average but also takes into account the current cash to futures basis.

By taking into account each of these factors, producers have market-driven, forward-price coverage they can evaluate and use to help manage the risk of finishing cattle.

Settlement

The LPI – Fed program creates a settlement index based on weekly data collected from Canfax. Settlement prices are based on data collected from the previous week. The settlement values are made public the following Monday afternoon (Tuesday when Monday falls on a statutory holiday).

The LPI – Fed program is not designed to insure quality or inter-provincial variations in price levels. While LPI is designed to reflect the actual markets of producers, insurance policies are not directly tied to the individual’s actual marketings or prices received.

Settlement Index

The index is calculated by:

1. Using Canfax data to determine the settlement price for finished cattle in western Canada.

Prices for all Canfax fed cattle sales transactions occurring in the previous week may be combined to form a weekly settlement index.
Yield data may be used to convert rail data to a live basis.
The data includes the prices for fed cattle reasonably expected to be graded at inspection as Canada Grade A or better and excludes prices for exotics or poor-quality cattle.
Protocols are in place to limit the impact of individual producers reporting large volumes (a producer is limited to 20 per cent of the weight on a given day) and figures which are either above or below $4/CWT from the weekly average will be reviewed and removed if considered invalid.
A settlement index may not be provided in a given week if data volume falls below 2,500 head sold.

2. In the event there is not enough information to create a settlement index, other reasonable market sources may be used.

*Canfax data will not be disclosed due to contractual obligations

LPI – Fed policies may not settle against the exact price the policy holder may have sold their cattle for, Canfax data of weekly fed cattle sales provides an accurate reflection of the western Canadian market conditions for the week.

Fed Purchase and Settlement Example

Example: Fed Purchase
Doug has fed 200 fat cattle to finish he is going to Market in April, they will average 1,350 lbs.

200 head x 1350 lbs = 270,000 lbs or 2,700 cwt to insure

Doug wants at least $1.50/lbs ($150/cwt). On December 19, 2019 LPI offered coverage of $156/cwt for a premium of $2.54/cwt. Doug does the math, he would be covered for $2,106/head at $156/cwt coverage.

$2.54/cwt premium x 2,700cwt insured weight = $6,858 total policy premium

$6,858.00 total policy premium /200 head = $34.29/head

Example: Fed Settlement
Doug has coverage of $156/cwt on his cattle for April 13, 2020 expiry. As Doug’s claim window draws near, he begins to watch the settlement indexes. During Doug’s four week claim window March 23 – April 13, the settlement price dropped below his coverage price for three out of the four weeks in his window. Doug felt prices would continue to come down during his window, so he decided to claim a portion of his policy on the first week March 23 and let the remaining amount settle on April 13. On the second week of Doug’s claim window, he was not in a payment position because the settlement index published was higher than his insured index.

Date	Settlement / CWT
March 23	$144.66/CWT
March 30	$156.55/CWT
April 6	$148.12/CWT
April 13	$143.12/CWT

Doug claimed a portion of his policy on March 23

$156/cwt coverage – $144.66/cwt settlement index = $11.34
$11.34 x 700 cwt insured weight = $7,938.00 indemnity payment

Doug left the rest of his policy to expire on April 13

$156/cwt coverage – $143.12/cwt settlement index = $12.88
$12.88 x 2,000 cwt insured weight = $25,760.00 indemnity payment

LPI – FED