4/12/2017 0 Comments
If you had a tool to make sure you had your minimum costs covered for your fall calf run, would you use it? Enter, the Western Livestock Insurance Program (WLPIP). The program was launched 2014 and offers price insurance for cow calf producers and cattle feeders. It essentially allows you to hedge your fall cattle prices in the spring. With the US Cattle herd having grown by 3% and reaching 40.6 million cows, paired a flat Canadian cow herd at 12 million head, prices may soften as the year progresses. WLPIP is an opportunity to manage the risk on your farm. It may be calving season, now but it is a good idea to think about how you are choosing to market this calf crop come fall time.
After the cattle super cycle of 2014/2015, our ranch was anticipating softer cattle prices. We saw WLPIP as an opportunity to manage our income with very little risk and cash output to guarantee us an acceptable price pay out in the fall. We were initially skeptical of how the program would fit for our ranch. Last year, we purchased calf policies for October, November and December for our ranch, as we weren’t sure when the fall calf run would peak. We settled our policies in October and November and estimate that the insurance netted us an additional $100 per calf. In December, the market rallied and we did not end up in a settlement position for our policy. We are insuring our calf crop for the fall of 2017 again. You need to know the risk and prices you are willing to tolerate for your ranch.
Here is an example of how the program works. A ranch has 100 cows and expects to wean 550 lb calves in October. They buy 550 cwt insurance to cover these calves and opts for buy a policy on March 9 for a 32 week period at an insured price of $1.80/cwt (see table below). This gives a floor price of about $1000 per calf when they wean in October. The cost of the insurance it $4.56/cwt, so the ranch pays out $2,500 total or $25 per head. If the market drops below $1.80/cwt in the last 4 weeks of the policy, they can claim for a settlement. All policies will automatically settle at the end of the period, if the ranch does not claim beforehand and the price is below $1.80 in the last week of the settlement period. More information is available on the WLPIP website at https://www.wlpip.ca/
If you know your production costs, you can cover floor price for breaking even. Your bottom line and your banker will thank you for managing your price risk. As farming continues to be volatile and risky, using programs like WLPIP has become instrumental in our farm business management to allow us to sleep at night, plan for costs, profits and future growth plans. Personally, I’ve been wishing for program like this for years and am happy to have this tool in my toolbox to use.
Copyright Bar Over 3H Livestock Ltd.
Julie-Anne is passionate about cattle. Working to provide solutions to cattle producer to increase their bottom line while working with healthier cattle and land.