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Hog Price Insurance Program

For some time now, Alberta’s pork producers have needed a tool to stabilize the impact of price volatility facing feeding hogs in Alberta. With funding from the Alberta Livestock and Meat Agency, Agriculture Financial Services Corporation (AFSC) worked with Alberta Pork, Western Hog Exchange and Alberta Agriculture and Rural Development to create the new Hog Price Insurance Program (HPIP).

HPIP is designed to insure both market hogs and weaner pigs, providing producers with an opportunity to secure a minimum price for a future market date.

As the program is offered year-round with policy lengths ranging from 2 to 10 months, producers are encouraged to sign up for the program and begin monitoring the market driven coverage levels available. The insurance can be purchased every Tuesday, Wednesday and Thursday afternoon, with coverage changing as market conditions change.

With no weight minimums required to purchase, the insurance can be bought over time to meet operational needs regarding risk management. Importantly, settlement is automatic. If the monthly average market hog settlement (cash) price is less than the insured price, the insurance program pays the difference.

The program is simple to use, as demonstrated by an example of a premium and payout calculation (please note that insured weights are for dressed not live hogs).

Example

A producer is marketing 400 hogs weekly and wants to purchase a policy expiring in November.

 Insured Weight  = (# of head x expected sale weight) /100 
   = (400 hogs x 95 kg) / 100
   = (38,000 kgs) / 100
   = 380 ckg (ckg = 100 kg)

 

The premium table on July 21 has a policy expiring in Nov/2011 with an insured price of $130.

The premium is $4.62 per ckg.

Premium cost  = 380 ckg x $4.62
   = $1,755.60

 

Assume the settlement price published for the month of Nov is $120.

The settlement price is below the insured price purchased resulting in an indemnity (payment) owed to the producer.

Indemnity owed  = 380 ckg x ($130 - $120)
   = $3,800.00

 

HPIP will assist Alberta’s hog producers with a simple, timely and transparent way to manage price risk. By insuring against unforeseen declines in the cash market, producers can secure a minimum cash price for hogs to be marketed in the future. The program offers a significant benefit by allowing producers to take advantage of a rise in hog prices while managing any downside risk.

AFSC has three Field Representatives to answer any questions producers have about HPIP:

Northern Region:  Stuart McKie  (780) 349-4544 
Central Region:  Brenda Campbell  (403) 782-8329
South Region:  Haley Rutherford  (403) 381-5840

 
For more information please visit www.afsc.ca, contact the AFSC Call Center at 1-877-899-AFSC (2372) or visit your nearest AFSC District Office.