Wednesday, 08 May 2013 16:25

Uncertainty over calf prices fuels growing nervousness

Written by  Courtesy Alberta Financial Service Corp.
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With calving season well underway across southern Alberta, area cattle producers are hoping that high calf prices — fuelled by tight cattle supplies over the last two years — will continue this fall when most calves are weaned and sold.


But there are several “unknowns and question marks” on the horizon that have many producers across the province feeling nervous about where calf and feeder cattle prices could end up this year, says Anne Dunford, an Alberta cattle market analyst.
“A lot of the nervousness we’re seeing began last fall when the U.S. drought caused corn and feed grain prices to spike, triggering a major drop in calf and feeder cattle prices,” explains Dunford. “Calf prices fell from a record $1.85/lb in February last year to $1.55/lb during the fall calf run. That price drop resulted from significant losses that continue today for feedlots and backgrounders who are shouldering record feed grain costs. The impact of those losses gets passed down the chain, affecting calf prices.”
Wild Price Swings and Consumer Demand Cause Concern
The price drop was a classic reminder that tight cattle supplies — the key driver behind today’s high calf and feeder prices — aren’t the only factor that influence prices, says Dunford, noting high feed costs have kept calf prices in the $1.50/lb to $1.55/lb range this spring.
“Those prices could climb higher if moisture conditions in the U.S. turn around and large corn crops are harvested this fall, causing feed grain prices to decline. But with so many other question marks on the horizon, there are no guarantees.”
Dunford points to extreme market volatility and wild price swings that could pose challenges for cow-calf producers who sell their calves at the same time every fall. Consumer demand is another worry.
“Consumers are paying record retail beef prices across North America. How much longer they’ll be willing to pay those prices will depend on the economy. That could have a huge impact on cattle prices this year,” she explains.
CPIP-Feeder Participation Triples
All of the uncertainty has sparked a surge of interest in Alberta’s Cattle Price Insurance Program (CPIP), that lets producers insure a minimum price for their cattle — protecting them if prices fall lower while still allowing them to sell their cattle at the highest price.
“Participation has tripled in the CPIP-Feeder program this year and we’re getting substantially more phone calls and questions about CPIP-Calf which is only in its second full year of being offered,” says Haley Rutherford, a field analyst in southern Alberta with Agriculture Financial Services Corporation (AFSC), the provincial Crown corporation that administers CPIP.
Until now, participation in CPIP-Calf has been low.
“Because calf prices have been so strong, many cow-calf producers didn’t feel the need for price protection. But that’s changing,” says Rutherford.
CPIP-Calf Payouts Last Fall — Up to $80/Head
“Producers are a lot less confident they’ll make money on their calves this year. Many are driving long distances to attend CPIP-Calf information meetings. And every day about 10 new producers sign up to receive CPIP premium tables which are emailed three times a week to more than 1,000 producers across the province,” says Rutherford. “It’s all because of the drop in calf and feeder prices last fall that triggered payouts of up to $80 per head on CPIP-Calf and up to $195 per head on CPIP-Feeder,” she says, adding, “The CPIP-Fed, Feeder and Basis-Only programs are still triggering payouts due to high feed costs and other factors.”
CPIP-Calf Deadline — May 30
Rutherford points out CPIP-Calf is offered from February to May, and the deadline to participate this year is May 30. CPIP-Feeder — for producers who feed cattle to a certain weight before moving them to a feedlot — and CPIP-Fed — for feedlot operators — are both available year round.
Bayot Britschgi, who runs an 800-head cow-calf and backgrounding operation near Medicine Hat, says never knowing what price he’ll get for his cattle each year is the reason he’s considering using CPIP-Calf again this spring.
“I hope prices are going to hold this year, but you never know. That’s the toughest part of owning cattle. We’ve seen it all — BSE, E. coli, severe drought,” says Britschgi, who typically sells his calves in late October.
Last year he received a payout under CPIP-Calf when prices dipped in the fall. This year, he’s watching the premium tables again, looking for a good price to lock in.
“We’ve got bills to pay no matter what happens. CPIP-Calf gives us peace of mind that even if disaster strikes we’re guaranteed a certain price for our calves.”
Cattle producers who aren’t happy with the CPIP floor prices and premiums being offered today should keep an eye on the premium tables, says Rutherford.
“Those prices change daily as markets fluctuate.”
She explains the floor prices producers can insure with CPIP reflect variables such as futures markets, the price of barley, exchange rates on the Canadian dollar, and the basis — the difference between U.S. and Canadian cattle prices.
“It covers all those risks in one tool.”
The flexibility of CPIP programs surprises many producers, says Rutherford.
“Especially when we tell them they don’t have to sell their cattle to collect a claim. They can sell the animal later once prices improve. Or if they insure a floor price for November but sell their calves at a higher price in August, they can still collect a payout if prices drop and trigger a claim in November, even though they’ve already sold the calves — as long as they owned the calves for 60 days during the policy.”
No minimum number of cattle need to be insured, and a four-week settlement window gives producers flexibility on when to settle claims, she adds. Claims are triggered when average calf and feeder prices at auction marts across Alberta fall below their insured price.
Revenue Protection to Prevent Losses
At the end of the day, CPIP takes the gamble out of where cattle prices might end up this fall, says Rutherford.
“It’s revenue protection that lets you lock in up to 95 per cent of the future forecasted price of Alberta cattle. Sometimes, the price you can protect will be profitable. Sometimes, it will minimize losses. It depends on where markets are that day.”
For more information about CPIP, producers can contact their local AFSC District Office, the AFSC Call Centre at 1-877-899-AFSC (2372) or visit www.afsc.ca.

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