ALERT

Feeder settlement delayed

Feeder settlement indexes will be delayed for the week of August 8 due to to insufficient volume of reported cash market sales. For additional information, please contact your local LPI office or the LPI Client Service Centre at 1-877-899-2372.

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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 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.

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 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.

Settlement

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).

Settlement Index

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

  1. Collecting data electronically from online and auction markets across western Canada using data from steers sold in the weight range of 750 to 950 pounds.
  2. 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. Online and auction market sales are used if 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, the data is rolled forward to the next sale day. This ensures the index is reflecting current market conditions.
  5. A weekly average is then taken using all eligible 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 will be calculated once enough data is available.

*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.