Market Price Insurance Study 2014

2013/2014 - Lamb Market Price Insurance Pre-Feasibility Study (MPIFS)
Serecon Management Consulting, Inc.

Between March and August 2012 prices dropped 33%; from November 2011 to May 2013 prices dropped 45% the combination of events created a financial “perfect storm” for Alberta lamb producers. While the average price of lambs in Alberta has steadily increased since 1986 there have been significant drops (2003, BSE) and pronounced spikes (2010, 2011). Added to annual price fluctuations is seasonal volatility with average August prices 10% to 16% lower than the average May prices.

A study was undertaken by Alberta lamb industry stakeholders, with funding from ALMA, to look for options to consider considered that might assist lamb producers deal with volatile market prices. The project goals included:

Lamb Market Information: identify sources, critical factors in lamb market information; identify gaps in information.
Review price insurance / risk management programs in other jurisdictions: identify potential opportunities and/or limitations.
Survey Alberta producers to assess current knowledge and use of existing risk management tools, preliminary assessment of potential uptake or market for a risk management product.
Develop recommendations for stakeholders regarding feasibility for price insurance for the lamb industry in Alberta.

Summary
“The lamb price decline in 2012 could be said to be a reoccurring type of industry adjustment, with 2 to 3 significant adjustments seen in the last 20-30 years. In 2012 part of the issue appears to be driven by high prices themselves. High retail prices lowered consumer demand particularly in the US and the EU caused prices to fall dramatically with supply exceeding demand. The lower demand and higher supply issue was compounded by high feed prices, growing production costs and a US drought forcing flock sales adding to the supply. At the same time environmental, economic issues, EU financial woes increased Australia and New Zealand lamb to the short term increase in global supply.”
(Source: Serecon, Lamb Price Risk Management Pre-Feasibility Study Report, December 2013)

Market price insurance is not currently a viable option for the lamb industry.
There is very limited cash and futures market price data to determine accurate settlement indexes and forecasting models.
The high level of volatility in lamb prices makes it difficult to predict prices and would likely lead to high premiums.
The small numbers of producers, the predominance of small flocks, the relatively short life cycle of a lamb would likely limit the numbers of producers who might benefit from current insurance program models for cattle and hog prices.
Producers attending Fall RoundUp 2013 were surveyed. General results indicated limited knowledge on risk management programs (AgriStability, AgriInvest) and limited use of existing insurance programs (Agriculture Financial Services Corporation forage insurance; commercial insurance for flocks). Producers indicated that costs would be a factor limiting use of insurance.

Project team
Peter Papez, Agriculture Financial Services Corporation
Susan Hosford, Bruce Viney, Alberta Agriculture
Margaret Cook, Chris Vammen, Alberta Lamb Producers

This document is maintained by Amrit Matharu.
This information published to the web on July 15, 2016.