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LPI – FEEDER

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.

Coverage

LPI – Feeder program is market driven, using several factors to forecast a future feeder price. Coverage is offered on Tuesdays, Wednesdays and Thursdays using market data from each given day.

Coverage Factors

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.

3. Basis

  • The Canadian-valued forward price is 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 CME 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.

4. Current and Forecasted Market Conditions
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 backgrounding cattle.

Settlement

The LPI – Feeder program creates a settlement index based on weekly data collected from 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).

Settlement Index

The settlement index is representative of the average price of an 850 pound steer in any given week. The index is calculated by:

  1. Collecting data from auction markets across western Canada using data from steers sold in the weight range of 750 to 950 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. A four-week average slide is calculated and applied to standardize prices to represent an 850 pound steer.
  4. Auction mart sales will be used if there are five lots or greater sold in one particular sale. The average price is calculated and prices above or below 10 per cent of the average are excluded from the calculation. If there are fewer than five lots sold during a sale, data is rolled forward to the next sale day. This ensures the index reflects current market conditions.
  5. A weekly average is then taken using all sale data from that week. This becomes the published index.
  6. 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.

*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

Feeder premium table example

 

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
August 3 $186.77/CWT
August 10 $184.31/CWT
August 17 $184.86/CWT
August 24 $191.61/CWT

 

Frequently Asked Question

How do I insure the light-weight calves in the fall that I have just purchased and am wintering to take to grass?  

If a producer is purchasing light feeder calves in the fall, with the intent of growing them on grass in the upcoming year, there won’t be a policy length long enough to insure the desired sale time.  LPI – Feeder only offers up to 36-week policies. These calves could be insured with a spring-settling LPI-Feeder policy and then re-insured for the fall, as long as the producer insures the weight the cattle are expected to be at each policy expiration. It is important to remember the correlation between the light feeder cattle in the spring and the 850 lb Feeder settlement index will potentially be less and the producer will be paying two sets of premiums on the same cattle.