An Assesment of Data Availability for Eastern Canada Feeder and Calf Price Indicies

Background

In order to provide cattle price insurance to the Maritime provinces, an eastern index was proposed to address the issue of adequate price discovery.

Objectives

Determine if fed, feeder, and calf price insurance indices could be developed and have adequate volumes in Eastern Canada.

What you did

Phase 1 of the study determined the feasibility of developing a feeder and calf price insurance product for eastern Canada by evaluating volumes from aggregated data in Ontario and Quebec. Phase 2 of the project developed the Eastern feeder and calf Indices utilizing lot level data from Ontario auction markets and a Quebec database. Phase 3 of the project evaluated the feasibility of volumes for fed cattle using four different data sets.

Construction of the Eastern Feeder and Calf Indices

The steps are as follows:

1) Apply the current week’s sliding scale to each lot.

2) Remove outliers that fall outside of the acceptable price range.

3) Calculate the Index as a volume weighted average using the remaining lots for the week.

What you learned

The feeder and calf indices were constructed using the same methodology. Both are based on beef steers using a 200-pound weight band with a sliding scale applied. The three differences between the Feeder and Calf Index are the weight bands, the outlier percentages, and the time periods that each is expected to be offered. The methodologies used in this report are similar to the ones currently being used AFSC, but there are some variations presented to better reflect the different nature of the data sets compared to the WLPIP ones. Ideally over time, additional auction markets would join ELPIP thereby improving the overall Index quality.

What it means

• Weight bands for feeders be set at 750 to 950 pounds, which is the same as the WLPIP Feeder Index.
• Weight band for calves be set at 500 to 700 pounds, which differs from WLPIP Calves which uses 550 to 650 pounds. The average weight would still be very similar to WLPIP Calf Indices. The 200 pound weight band helps to increase the weekly volume.
• The blackout periods for the feeder index be July, the first two weeks of August, the last two weeks of December and the first week of January. As additional volume is added to the Feeder Index, the blackout periods can be reviewed.
• The WLPIP Calf product is offered seasonally from September to December. The volume analysis confirms that the volume is sufficient in the Eastern Calf Index to settle from September to the first half of December. The blackout period is the last two weeks of December.

• Increase Volume for the Eastern Feeder Index
• Use of Modified Methodology for the Outlier Rules (to include 1 and 2 head lots as they represent a large portion of the datasets)
• Use of Modified Methodology for the Sliding Scale (utilize multiple regressions to account for the 200 lb weight band)
• Utilize Current Market Slide from Ontario Cattle Buyers in Slide Methodology

Four data sets were evaluated for fed cattle prices; however only the 2020 year had all four datasets available for comparison. Recommendations included:

• Inclusion of both steer and heifers in the Fed Index (steers accounted for 82% of the total volume in 2020).
• The high proportion of volume of the Canfax (62%) and Quebec data sets means that the Fed Index could be based on these two data sets.
• There are very few outliers removed for the Quebec and Canfax data sets as they do not have small lots. For the Quebec and Canfax data sets a 3% to 4% outlier level appears reasonable.
• The downside of including all four data sets is that some of the data included in the Fed Index is less representative of good quality fed cattle. This leads to greater index variability and less correlation to the true market price.
  • The Canfax and Quebec data sets appear to be of high quality and should be an excellent representation of current market prices for each week. The two Ontario data sets have a much higher proportion of small lots and would be less representative of the current market price even using an outlier rule.
  • The small number of lots in the Canfax data set along with less consistent price reporting highlights the one disadvantage of relying on the Canfax and Quebec data sets for the Fed Index. The tradeoffs in the choice of data sets for the Fed Index
• Eastern Fed Index using the Canfax and Quebec data sets with an outlier level of 3% and including both steers and heifers appears reasonable.
• The last half of December and the first week of January were removed as this three-week block is considered a blackout period. The time period is from September 2019 to June 2021 and consists of 89 weeks of data, excluding the six weeks of the blackout period.
• The average volume was 1,967 head. All weeks had data except for the week of March 9 to 15, 2020, which was affected by Covid-19 restrictions. There were three weeks with volumes less than 500 head and 15 weeks with less than 1,000 head. The 15 weeks with less than 1,000 head were divided across eight different months indicating that there was no seasonal component to the low volume periods.
• The Eastern Fed Index with an average volume of 1,967 head per week and an average lot size of 108 head can provide a solid index for insurance settlement purposes. The large average lot size is an important contributor to the high quality of the Fed Index.
• It is recommended that efforts be made to determine if additional volume can be obtained from the fed cattle database at Les Producteurs de bovins du Québec. The issue is that the sale date is not known in the fed cattle database outside of the Quebec auction data. The date in the database is the date producers report their sale and is not the actual sale date.