Western Livestock Price Insurance Programme Coming to Saskatchewan04 April 2014
CANADA - Saskatchewan's livestock producers will soon have access to a new risk management tool to help withstand volatility in the market place.
The Western Livestock Price Insurance Programme, announced by Saskatchewan agriculture minister Lyle Stewart in January, allows the livestock producer to pay a premium up front to set a floor price and, if the selling price falls below that floor price, a payment is triggered.
Mark Ferguson, the manager of industry and policy analysis with Sask Pork, says the programme offers protection from fluctuations in hog prices, the Canadian dollar and the basis, it's simple to understand, and there's no minimum number of hogs required to participate.
Mark Ferguson-Saskatchewan Pork Development Board:
Price Insurance basically works the same as purchasing an option on a futures exchange such as the CME.
The producer wishing to purchase coverage pays a premium up front to guarantee that if the reference price goes below a certain level that he's targeted then the program covers the difference in the prices.
The premiums seem to range between several dollars and about seven dollars per CKG.
That price of seven dollars per CKG gets you 95 per cent of what the current market price is so it gets you very close to what you could lock in on the futures market.
However the price is going to be a little lower than what you could lock in if you did it on the futures market in terms of a hedge or a forward price so that's one of the issues with the programme.
The target price you're setting or the floor price is going to be slightly lower than what you could get if you either did a forward price or a hedge yourself.
Mr Ferguson says the advantages of the programme are that if the hog price goes higher than the insured price the producer collects the higher price and in the event the producer is for any reason unable to deliver hogs there is no penalty.
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