Hog price insurance: D.O.A. from the get-go

RISK MANAGEMENT | WLPIP is available in Manitoba but was never a viable option for hog producers. Why?

 

By Geralyn Wichers, Manitoba Co-operator (Canada)

June 29, 2020

 

Since 2014, Manitoba and Saskatchewan have had livestock price insurance for hogs. It’s been used exactly once.

 

“We were pretty excited when they introduced it because I mean we, at that time, didn’t have a lot of risk management options,” said Mark Ferguson, general manager of Sask Pork.

 

In 2014, Alberta-based Western Livestock Price Insurance (WLPIP) expanded to the rest of the western provinces.

 

But when hog producers saw the premiums — $10 to $20 per animal to lock in a price that was 90 per cent of market price — Ferguson said it was no surprise producers didn’t bite. Hog farmers opted to stick to what they knew, like fixed forward contracting.

 

Why it matters: COVID-19 hit the hog sector hard, but producers currently have few risk management tools at their disposal.

 

If premiums were doable, producers might consider WLPIP. COVID-19 has hit the hog sector hard with reduced demand and large supplies weighing heavily on the market.

 

“The prospect of profitability at current forward prices and at current cash prices is nil… and there’s really no prospect of making anything this year,” said Tyler Fulton, director of risk management with H@ms Marketing in Manitoba, in an interview with MarketsFarm.

 

Fulton added that while many producers are still staying profitable due to forward contracts — and government programs should also provide some support for the industry — the current weakness in the market means some hog farmers will likely be forced out of business.

 

Dead on arrival

 

WLPIP began as a cattle price insurance program after the BSE crisis. Beef producers and cattle groups approached Alberta’s Agriculture Financial Services Corporation (AFSC) and asked for a price risk management program in case of another catastrophic price decline, said Bill Hoar, who co-ordinates WLPIP.

 

Beginning in 2009, AFSC progressively rolled out fed, feeder and calf programs. In 2012, it added a hog program after “lengthy” meetings with Alberta Pork and producers, Hoar said.

 

“Those discussions were definitely around premiums — a lot,” said Hoar.

 

Despite fears the program would be too costly, Hoar said they had to find a level at which the program could be actuarially sound and self-sustaining.

 

“It’s not for us to say, well yeah we would like everyone to buy this and we should make it really cheap so everyone can afford it,” he said.

 

The program has to account for the volatility of the industry, and the various disasters that have happened over the years, and be ready to pay out if those occur, he said.

 

In Alberta, the program saw some uptake. According to a report from AFSC, producers insured 2,000 hogs from 2012 to 2013, and 6,700 hogs from 2013 to 2014. However, between 2015 and 2019, no more than 10 hog policies per year have been sold in Alberta.

 

In 2014, WLPIP became available in Saskatchewan, Manitoba and B.C., said Hoar. He recalled that year a member of Manitoba Pork bought a small policy, to see how it functioned.

 

Based on MASC reports, it appears this is the only policy ever sold in Manitoba. Based on Saskatchewan Crop Insurance Corporation data, it appears no policies have ever sold in Saskatchewan.

 

Why didn’t it work? ...

 

Can it be salvaged? ...

 

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https://www.manitobacooperator.ca/news-opinion/news/hog-price-insurance-d-o-a-from-the-get-go/