Livestock Price Insurance - Hog Price Insurance

“Alberta. Agriculture Financial Services Corporation”

The funder does not disclose this information

Maximum Eligible Amount

Government Grant

Fund Type

Hog Price Insurance is designed to provide producers with protection against declining hog prices.

Hog producers have the option to purchase an insurance policy based on a forecasted hog price. When the policy expires the coverage purchased is compared to a settlement price. If the settlement price is below the insured price, a payment of the difference is made.

The Hog Price Insurance Program is designed to be a simple and easy to understand risk management tool for Alberta hog producers.

LPI – HOG

The Livestock Price Insurance – Hog was developed with the aim of enhancing Western Canadian hog producers’ ability to manage price volatility in the hog market. LPI offers a risk management alternative to futures and options, with a highly transparent, fixed cost to the producer. There is no minimum weight to insure; it is a tool available to both large and small producers. Participation is voluntary and flexible, allowing producers to tailor coverage to their own operations and risk preferences.

Features of LPI-Hog Price Insurance

LPI insured indexes (coverage prices) are calculated based on market data on each given day.

LPI – Hog includes three indices for coverage. An Alberta index is based off of Red Deer, a Saskatchewan index is based off of Brandon, SK and a Manitoba index is based off of Brandon, MB. These indices are geographically representative for the producers selling to these slaughter facilities.

The forward price is calculated using the Chicago Mercantile Exchange’s (CME) lean hog future with a cash-to-futures basis adjustment. This price is then converted to a western Canadian equivalent price by a forward exchange rate and a western Canadian factor.

Coverage Factors

1. CME Lean Hog Futures
The nearby futures contract for each policy length is used to calculate a forward U.S. price for hogs.

2. Basis
The basis is calculated as the five-year-average of the appropriate local U.S. region-to-CME basis.

3. Canadian Dollar
A forward currency exchange is used to convert the forward U.S. hog price into Canadian currency.

4. Factor
Values from the appropriate plant are used to reflect the difference between the market conditions in western Canada and the United States.

By considering each of these factors, producers have market-driven, forward-price coverage to help manage the risk of marketing hogs.