Manitoba livestock producers are learning more details about a new government program that could safeguard them from unexpected price drops.
Announced in January, the Western Livestock Price Insurance Program is a risk-management tool, offering price insurance to cattle and hog producers.
Merv Nykoliation, who farms north of Lenore, said he’s interested in the program, but questions why it took so long to develop something that limits producers’ exposure to risk.
“It’s almost too little, too late. We really needed a program 10 years ago,” Nykoliation said, pointing to the market collapse of 2003, after bovine spongiform encephalopathy was discovered in an Alberta cow.
“A lot of the farmers that had cattle have left the industry because they went broke and now they’re coming out with a program when prices are at record highs.”
With a small purebred herd and commercial cattle, Nykoliation said after a decade of being beat up in the industry, he hopes to earn back what he has invested as prices are forecasted to stay strong for several years.
“I’d like to get a couple of good years in,” he said. “And it’s a good thing because we sure needed it. Prices have been so low for so long that I want to reap some of these benefits.”
Part of the reason for a strong market outlook is the mass exodus of producers over the last decade.
There were 1.165 million cattle in Manitoba in 2012, a steep decline from 2006, when there were 1.49 million. That trend has continued throughout the country, and with strong global demand for beef, prices are expected to remain strong.
The ability to lock in prices should benefit new producers, who will be able to show lenders a guaranteed profit margin.
However, Nykoliation said with the prices so strong right now, it would be tough for anyone to jump into the market. He also believes younger producers are opting to farm the land rather than cattle because of the intrinsic labour-intensive nature of cattle farming.
“Livestock is a year-round, 24-hours-a-day, seven-days-a-week job,” Nykoliation said.
Jason Dobbin, livestock price insurance co-ordinator at Manitoba Agricultural Services Corporation, has been busy explaining how the new insurance program will work at roundtables throughout the province.
“We’ve had phenomenal interest from producers,” Dobbin said.
The insurance mechanism is strictly on the price of cattle, it isn’t applied at the point of sale, but instead during a four-week window when the producer would typically sell his animals.
Dobbin said it would be impossible to insure the actual animals because that would require keeping records on where cattle were sold, how many were sold and for what price.
“You’re paying a premium up front to ensure a price at a set period of time, but there is some flexibility,” Dobbin said. “You can essentially guarantee yourself a floor price for every production cycle from calf to finish ahead of time.”
The program is available for calves, feeder cows and fed cows.
Cattle producers must have owned insured calves and feeder cows for 60 days prior to the end of the policy, while fed cattle need to be owned for four weeks.
If there is one criticism, it’s that if another situation similar to BSE occurred, the insurance would only protect farmers against one cycle of low prices. However, it would substantially mitigate losses for producers who bought at market prices only to find the market collapse overnight.
Audits will ensure producers aren’t insuring more hundredweight than they own.
“If a producer really knows what his costs are, they will be laughing,” Dobbin said.
Applications are now available for all three markets, feeder cattle and fed cattle are open year-round while calf price insurance ends May 29.
Manitoba Beef Producers president Heinz Reimer said the program, combined with revisions to the forage insurance, will give producers a bankable management package moving forward.
“MBP is pleased to see this programming which beef producers can use as a new management tool to reduce the cost of risk,” Reimer said.
“This programming puts beef production on a more level playing field when compared with other commodities and we encourage producers to investigate how this tool can work for their operations.”
The program also includes insurance for the pork industry.
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Republished from the Brandon Sun print edition April 10, 2014