The Bovine: Exploring Livestock Price Insurance

A soft market at the wrong time can have a significant impact on a producer’s bottom line.

On a recent episode of The Bovine podcast, host Kara Mastel spoke with Brett Hassard, Livestock Price Insurance (LPI) Product Coordinator with Agriculture Financial Services Corporation (AFSC), about how the program works, questions producers commonly ask and why risk management continues to be an important conversation in the cattle sector.

Hassard brings experience from several parts of the beef industry. Raised on a cow-calf ranch in southeastern Alberta, he studied animal science at the University of Saskatchewan before working in a feedlot, buying cattle for Cargill’s High River facility, and eventually joining AFSC.

“Seeing the industry from basically all ends of it has been very eye-opening on how inter-connected everything is and how important all pieces of the puzzle are for this industry.”

Understanding LPI

LPI is a risk management program available to western Canadian producers that allows them to purchase price insurance on calves, feeder cattle, and fed cattle for a specific marketing period.

In simple terms, the program establishes a floor price for insured livestock. If the settlement price falls below the insured value, the policy may result in an indemnity payment. If market prices remain above the insured level, producers can market their cattle at prevailing market prices.

As Hassard explained, “It’s a business risk management program that gives the ability for producers of all kinds of livestock, calves, feeders, fed cattle, to basically purchase a floor price for their livestock in the form of an insurance policy.”

How the process works

According to Hassard, the starting point for producers considering LPI is a marketing plan.

Using the example of a cow-calf producer planning to sell 550-pound calves in early November, coverage can be selected with an expiry date that aligns with the anticipated sale period. Once coverage is purchased and the premium is paid, the policy remains in place until expiry.

Approximately three weeks before expiry, a claim window opens. If the settlement index falls below the insured price, producers have the option to submit an early claim. If no claim is made, the policy settles automatically when it expires.

“At the end of the day, they purchase coverage, they have a floor price,” said Hassard. “If the market falls below their coverage price, LPI will pay the difference.”

Understanding coverage

One of the most common questions producers have about LPI centres on how coverage is measured.

While many producers think in terms of head count, LPI coverage is purchased based on hundredweight (cwt). Producers use their expected sale weights to determine how much coverage they need.

Hassard said this is often where confusion arises for first-time users of the program.

Producers can also review the weekly LPI price tables published on ABP Daily. The values shown represent the highest coverage available for that week, although multiple coverage levels are available at different price points and premium costs.

Recent market examples

During the discussion, Hassard pointed to recent market volatility as an example of how the program functions when prices move lower after coverage has been purchased.

He noted that softer calf prices earlier in the fall resulted in some producers being eligible for indemnity payments. He also referenced a period of volatility in the feeder market last winter when prices declined sharply before rebounding the following week.

While those examples illustrate how the program can respond to changing market conditions, Hassard emphasized that producers need to consider how risk management fits within their own marketing plans and business goals.

Managing risk

A recurring theme throughout the conversation was that there is no single approach to managing risk.

Some producers may choose to insure only a portion of their expected marketings. Others may select different coverage levels or spread coverage across multiple marketing periods. For some operations, LPI may be one of several tools used to manage exposure to market fluctuations.

“It really comes down to whatever a producer’s risk tolerance would be,” said Hassard.

He added that producers should consider all of the factors that can influence cattle prices, including market price, currency exchange rates, and basis.

“Every operation is different and every producer needs to make sure that they’re covering what works for them and doing what works for them.”

Hassard also noted that producers appear to be paying closer attention to risk management than they have in the past.

“It’s more important now than ever with everything going on in the world and what we’re watching to make sure that we’re paying attention to risk.”

Looking ahead

When asked how risk management conversations may evolve in the coming years, Hassard pointed to the increasing influence of global events and market uncertainty.

“I think producers need to stay cognizant of what’s happening in the markets, what’s happening with geopolitics, that kind of stuff,” he said. “At the end of the day, it’s just being able to educate and learn where the risks are and how they can cover them off.”

Producers interested in learning more about LPI can visit LPI.ca or listen to the full episode of The Bovine featuring Brett Hassard. Hassard will also be attending the Alberta Beef Producers’ AGM and Convention in December and will be available to answer questions from producers.