Livestock Price Insurance for feeder cattle is intended for backgrounded animals. Producers can tailor coverage to their operation by purchasing price insurance for intended marketings year-round.
Features of LPI – Feeder 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|
|Minimum Weight Requirements||No weight minimums|
|Regional Settlement Indexes||Alberta – settlement index based off Alberta markets
SaskMan – settlement index based off Saskatchewan and Manitoba markets
|Data Collected for Coverage and Settlement Calculations based on||750 – 950 lbs steers|
|Settlement Index Representative of||850 lb steer|
|Claim Window||4 weeks**|
*With the exception of blackout periods
**Policies nearing the end of a blackout period are not guaranteed four weeks of claim. Reference the Calendar of Insurance to ensure you select a policy with the appropriate claim window.
LPI – Feeder is a market-driven program. Coverage directly reflects the feeder cattle futures and the Canadian dollar on the publishing day of the insured index (coverage prices).The current cash to futures basis is compared to the three-year historical basis and when all calculations are conducted a forecasted price is provided for an 850 pound steer.
1. Chicago Mercantile Exchange (CME) Feeder Cattle Futures
The nearby futures data is used to calculate a forward U.S. price.
2. Canadian dollar
Forward currency exchange data is used to convert the forward U.S. price into Canadian currency.
- The Canadian valued forward price is adjusted for basis, which involves the historical, current, and future market conditions.
- The basis is calculated for the policy’s expiry week by comparing the three-year average feeder settlement index to the three-year average CME feeder cattle nearby futures.
- This calculation assumes the basis will eventually return to the three-year average but also takes into account the current cash to futures basis.
4. Current and Forecasted Market Conditions
By considering each of these factors, producers have market-driven, forward-price coverage to help manage the risk of backgrounding cattle.
The LPI – Feeder program creates a settlement index based on weekly data collected from online and auction markets across western Canada. From this data, a settlement index is publicly available on the following Monday (Tuesday when Monday falls on a statutory holiday).
The settlement index is representative of the price of an 850 pound steer in any given week. The index is calculated by:
*Auction market sales data will not be disclosed due to contractual obligations
Feeder Purchase and Settlement Example
Example: Feeder Purchase
Doug has 80 feeders calves he is going to market in August, they will average 850 lbs.
80 head x 850 lbs = 68,000 lbs or 680 cwt to insure
Doug wants at least $1.80/lbs ($180/cwt). On March 3, 2020 LPI offered coverage of $182/cwt for a premium of $5.70/cwt. Doug does the math, he would be covered for $1,547/head.
$5.70/cwt premium x 680 cwt insured weight = $3,876.00 total policy premium
$3,876.00 total policy premium /80 head = $48.45/head
Example: Feeder Settlement
Doug has coverage of $182/cwt on his cattle for August 24, 2020 expiry. As Doug’s claim window draws near, he begins to watch the settlement indexes. During Doug’s four week claim window August 3-24, the settlement price did not drop below his coverage of $182/cwt. There would be no payout for Doug on his LPI policy.
|Date||Settlement / CWT|