Low uptake for Corn Fed Beef's risk management scheme

Wednesday, January 14, 2015

by BETTER FARMING STAFF

Organizers of the Ontario Corn Fed Beef brand promotion program say many of its facets are experiencing success but enrollment in an innovative initiative to help producers mitigate market price fluctuations has been very low.

Ontario Corn Fed Beef Inc., the company established to operate the ledger account for the successful program, is exploring whether it can help by providing incentives for producers.

“We are putting a strong focus on getting hedge strategies aimed at more cattle coming to market in the summer months, as that’s the time our customers are in need of a lot more cattle,” explained Brian Kaufman, Ontario Corn Fed Beef risk mitigation and trading manager.

Other hedging strategies are also being considered to entice more producers to enroll in the ledger account, which has experienced a lackluster enrollment during its first year of performance.

The ledger account is intended to stabilize prices for producers by offering a line of credit to cover market fluctuations for commodity futures contracts and cattle purchase payments. The fund was kick started as a two-year pilot in 2013 using a $10 million grant from the provincial government. Producers must pay $500 annually to join and a further $10 per head sold under the brand to cover administration costs.

Jim Clark, Corn Feed Beef program’s executive director, wouldn’t say how many producers had enrolled in the ledger program’s inaugural year or the amount the fund had paid out, noting Ontario Corn Fed Beef Inc. is a private corporation and the numbers are confidential.

Clark said that the fund’s public dollars are not invested and more than $9 million remains.

Animals that are sold through the ledger account do not qualify for the province’s risk management program feedlot category payments, and Kaufman said the exclusion is a “major deterrent to participation (in the ledger program), especially since the producer could do the same type of forward pricing with a processor or with another third party and still have access to the RMP.”

But the ledger account still might be of interest to those who produce more cattle than allowed under the RMP’s cap or who have chosen not to enroll in that program. “The producer, Corn Fed Beef and the processors have been happy with the way the program has been working,” Kaufman said. Those involved feel there are tangible benefits. “There’s a general consensus that having this program in the marketplace, although not overly subscribed, has offered more competition here in Ontario for forward pricing and may be a contributor to keeping the basis in this province at a higher level than other areas of the country.”

During the Ontario Cattle Feeders’ Association annual convention last week in London, president Dale Pallister noted that the brand, currently involving about 500 Ontario farms, grew significantly in 2014.

Two key players in the Canadian food industry, retailer Loblaw Companies Limited and Sysco Foods Canada, a major food service provider to restaurants and institutions, are promoting its products. Corn Fed is also making inroads into overseas markets utilizing cuts of beef that bring a low price domestically and is experiencing some promising opportunities in the Middle East and Japan.

At home, response has been strong to the brand’s certified platinum program, Clark said. The program features the top three per cent of cattle in the main program and was launched into Loblaws in 2012.

But to grow the brand, whether it is the premium program, regular products or exports, a steadier year round supply is needed, particularly during the summer barbecue season. Clark noted that smoothing the peaks and valleys of supply has been a challenge ever since the Cattle Feeders launched the brand in 2001.  

Pallister said last year’s record high prices for animals has meant that risk management is currently not as much of a concern for producers, but it should be. Higher prices create more risk because of the higher costs association with high inventory values.

“We all know how volatile the markets can be, and those price swings are likely to be more violent in the future than what we have experienced in the past,” he said. “While we might not need them now, we need to be conscious of the fact that there are tools available that can be used to alleviate some of the risk.” BF