Every type cattle of operation faces price, basis, and currency risk. Depending on the product being produced and marketed, producers are impacted differently from these risks. To provide adequate protection, each of the three cattle insurance products are designed to target a different stage of production. Producers may purchase multiple policies to cover all or a portion of intended marketings.
The calf product is offered in the spring and covers the price risk a cow-calf producer faces selling calves in the September to February markets. The settlement index is based on the average price of a 600 pound steer. Producers must own the insured calves for 60 continuous days within the policy length and feed the calves within western Canada or a geographical locale specified by LPI.
Learn more at LPI-Calf
The feeder product is offered year-round and covers the price risk a cattle feeder faces when marketing. The settlement index is based on the average price of an 850 pound steer. Producers must own the insured calves for 60 continuous days within the policy length and feed the calves within western Canada or a geographical locale specified by LPI.
Learn more at LPI-Feeder
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. Producers must finish the fed cattle in western Canada for the final four-week period immediately prior to the claim window.
Learn more at LPI-Fed
The fed cattle price reporting option enables producers to report their cash prices directly to LPI in order to benefit the settlement index and sustainability of the program.
Learn more at LPI-Fed Cattle Price Reporting
Cost to Participate
Premiums of the LPI program are fully funded by producers. Premiums are market-driven and are based on traditional insurance principles. Premiums fluctuate based on a number of market-related factors.
1. Forward Cattle Price
The only forward-looking estimate for cattle prices in North America is the Chicago Merchantile Exchange (CME).
Calf: There is no forward-looking estimate for calf prices in North America, so LPI uses the feeder cattle futures traded at the CME. 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.
Feeder: CME feeder cattle future prices are used to establish a forward price which is then converted to Canadian currency and adjusted with a basis projection. This model assumes the basis will eventually return to the three-year average basis.
Fed: CME futures prices are used to establish a forward price, which is then converted to Canadian currency and adjusted with a basis projection.
2. Life of the Policy
Longer policy lengths may have a greater chance of the settlement price being below the insured price. Typically, longer policies have higher premiums.
3. Market Volatility
If the market is highly volatile at the time of the policy sale, the premium will be higher. If the market is relatively stable, the premium should be less expensive.
4. Coverage Price
The premium is reflective of the coverage selected. Higher coverage will produce a higher premium and lower coverage will produce a lower premium.
A fixed interest rate is assumed throughout the life of the policy. Interest rates are based on the Bank of Canada Treasury Bills.
What is basis?
Basis is the difference between the current cash price and the nearby futures price.
- The cash market reflects the actual selling price of a physical commodity (auction market).
- The futures price reflects the predicted price of cattle at a specific future time.
- Basis also reflects the impact of trade issues, cost of gain differences, transportation, border fees, and supply/demand of cattle.
What is the settlement index?
The settlement index is the average market price for relative cattle sold on a weekly basis.
Settlement is not based on the actual prices received by each individual policy holder’s sales. The settlement index for each cattle product is determined using different sources.
The settlement index for each week is calculated and published on the following Monday, allowing policy holders to settle some or all of their insured weight against the published settlement price. This can only take place between 2 p.m. and 11 p.m. (MT) that Monday.
Understanding Your Claim Window
All cattle policies have a claim window ahead of the expiry date. This enables policy holders to claim on settlement indices published on Mondays of each settlement week. The claim window is the three consecutive weeks leading up to the expiry date.
To claim early (in the first three weeks of the policy), producers must contact their local LPI office or use the self-service LPI.ca portal. If the producer does not claim early, the policy will automatically settle on the expiry date with no action required.
Regional Settlement Indexes – Calf and Feeder
When producers purchase LPI Calf or Feeder policies, they should consider the region which represents where the cattle will be marketed to accurately reflect the risks associated with their operation.
LPI offers two separate indexes for the Calf and Feeder programs:
- Alberta – Settlement index is based on Alberta auction market sales
- SaskMan – Settlement index is based on Saskatchewan and Manitoba auction market sales
Program participants are not limited to one index or the other. Producers from any western province can purchase on either table to meet their marketing strategies.
Participating Auction Markets for LPI
LPI Feeder and Calf policies are not settled against the exact price the policy holder may have sold their feeders or calves for. Having a large number of online and auction markets participating in the Program allows settlement values to reflect the market conditions of the week across the provinces by specified region. Click here to view the list of participating auction markets.