Cattle Price Insurance Program (CPIP)

[charliep]

Alberta announced a price insurance program for finished cattle yesterday. One for feeders is in the works.

[URL="http://alberta.ca/acn/200909/268469FB3F2C4-A66F-55E6-D73762A4C118F04F.html"]CPIP[/URL]

This model for price insurance could be applied to crops.

[ward.toma]

Charlie, can the AB government develop a program to
insure canola basis? Should be far less risky (and
costly) than cattle basis.

[charliep]

Ward

If there is an interest in a product like this for canola, I am sure it would be looked at. Having said that, AFSC/ARD and other partners need to learn to walk (perhaps crawl) before we run - get the first program launced and running. Also, the next step would be to get other provinces and the federal government involved so would be a more national program - see comments beef section agriville.

When I look at the cost and risk associated with CWB producer payment options, they alson should be watching this program and consider applying to own risk management/products offered farmers.

[perfecho]

The "spin" meant for consumers from the AB goverment website......
"The Cattle Price Insurance Program is designed to provide Alberta cattle producers..... " (sounds wonderful)
The reality from the AFSC website.....
"Heifers and steers that are at least 500 lbs. when the policy is purchased, are intended for slaughter by the Insured, and must reasonably be expected to yield Grade A or better at the time of slaughter." (Counts me out...but the voting public doesn't know most producers don't slaughter their own cattle)
Could someone enlighten me as to the percentage of cattle that will be "slaughtered" by anyone other than Cargill and Nilsson's? 90%?
So, lets say Cargill's feedlot division buys inusrance, but takes a loss when selling to Cargill's processing..........
Someone please tell me what I am missing here?

[smcgrath76]

A couple of other concerns...
The program is designed to be self
funding. It will be interesting to see
how the premiums evolve.
How will the cow/calf sector be handled
as this has been indicated as a long
term goal (delayed due to complicated
nature of the sector)? I am not sure
that the futures market can be used to
accurately determine risk in this sector
due to the length of production time
(start to finish) vs. available futures
contracts. At some point we are talking
about speculating 18 months to 2 years
out into the future and working back.
Perfecho - you are forgetting the NB
auction, feeding and processing
divisions (LOL).

[ward.toma]

AFSC has never used the futures market to manage
risk. They are pure insurance people, they sell the risk
to the re-insurance market.

[smcgrath76]

w.t - my question though is how you would
determine risk at the CC level, and if so,
what the possible premium to insure that
level of risk would be? Inaccuracies in
predicting risk would increase the risk
and raise the premium.

[charliep]

smcgrath76

Just looking for a definition of CC. Cash Commodity?

[charliep]

Cow calf? Now I'm awake.

[ward.toma]

Good question sm, one would have to ask an actuary,
but you have the premise right. Unless it's subsidized,
increased risk means increased cost.

[ward.toma]

As for risk at the cc level? Establish a relationship to
an upstream price. The strength of the relationship
influences the cost. Stronger relationship, less cost.

[ward.toma]

I've wondered this but never looked into it. The
upstream price may not be a cattle price but perhaps
the cost of feed at the feeder level? The feeding
margin?

[smcgrath76]

My thoughts are that it is three or four
fold...
1. the canadian dollar
2. the feeding cost
3. the fed price
The challenge is that a calf born in
spring 2010 for example, may not even go
on feed until spring or even fall 2011.
They may finish anywhere between 13 - 24
months of age and a lot of
risk/change/etc. can happen in between.
I am not sure how you would forecast
that far ahead for anything like a
reasonable premium.

[charliep]

Can't comment for sure but suspect this will be handled by dividing the program into tighter time periods. Example would be a program for calves (cow calf operations), backgrounding and perhaps grassers. A rancher would make decisions about the calves/decide whether to participate or not. In the fall when the rancher decides whether to background or not, there would another CPIP program for this weight range.

Will note the original consultant that did the CPIP availalbe today is working on the feeder cattle one. ABP is the project for this project under the Private Sector Risk Management Partnership funding via the federal government.

[charliep]

ABP is the project manager.