The 2022 drought has reminded us about its productive, financial, and economic impacts on our business. Today we will review USDA’s Pasture, Rangeland, and Forage Insurance Program (PRF) which has shown to be an essential tool to support ranchers during these times.
Dates & Deadlines
10/11/2022 – Northeast Panhandle Beef Conference, Lipscomb
10/13/2022 – Ag Support Programs and You, Electra
10/24-28/2022 – Ranch Management University, College Station
10/27/2022 – Graham Cattle Clinic, Graham.
What We’re Reading
United States Hog Inventory Down 1% – Morning Ag Clips
FDA proposes voluntary ‘healthy’ food label claim – Feedstuffs
Pasture, Rangeland, and Forage Insurance Program Review
The USDA’s Pasture, Rangeland, and Forage Pilot Insurance Program (PRF) deadline is approaching, December 1st. This program, better known as rainfall insurance, was developed to reduce the economic impact of a lack of rainfall. It was designed to provide insurance coverage on grazing pastures, rangeland, and forage acres with or without irrigation.
Unfortunately, droughts always have a negative financial and economic effect on our business. The USDA’s Pasture, Rangeland, and Forage Insurance (PRF) has shown to be an essential tool to support ranchers during these times. PRF showed a positive net benefit of indemnities over premiums in many cases. But most importantly, it generated significant payments in drought years when needed most.
How does it work?
The program does not directly measure the drought effect. It measures the lack of rainfall. The National Oceanic and Atmospheric Administration (NOAA) developed a rainfall index to determine the lack of precipitation in a specific area or grid.
The index compares the actual rainfall with the average rainfall for that grid. Each grid used by NOAA has approximately 17 by 17 miles (if located at the equator). Remember that lack of rain is not the only variable that determines the severity of a drought (although a very important one).
Producers must select the intended use of those acres (Grazing or Haying), irrigation practice, organic practice, and coverage level (70%, 75%, 80%, 85%, 90%). Most importantly, producers can select the periods in which they consider coverage is most important for their operations. The system allows you to choose the percentage to be insured in bi-monthly intervals. The program will enable you to assign a productive factor to better match your farm productivity in that area.
Indemnities are triggered when the actual rainfall is below the average historical rainfall.
The USDA has a support tool that will help you understand how it works, estimate premium costs, and estimate results since 1948.
For this case, we will use a 100-acre farm as an example (to make it easy). Last year we used a ranch in Hardeman County as an example. This year we will take as an example a ranch in Dickens County (Grid ID: 16018, Image 1).
We assumed that 100% of the acres used for this ranch example are in the same grid. However, the acres you want to insure on your farm might be in more than one grid. In that case, you will have to ensure each acreage of each grid.
Image 1. Pasture, Rangeland, Forage Support Tool. (USDA-RMA)
First, after selecting the farm’s location, we need to choose the intended use of the insured acres (Grazing or Haying), the production systems (irrigation, organic), and the coverage level (70%, 75%, 80%, 85%, 90%). We will use the default coverage level of 90% and a productivity factor of 100%.
We also need to select a sample year. Since 2022 has not finished yet, we won’t be able to use it as an example. We will use results from 2011 as the sample year, which was a very drought.
Second, using bi-monthly intervals, we need to choose how we want to allocate the insurance during the year. There are several strategies that you can discuss with your insurance broker.
In this case, we will use one of the most common strategies. We will spread our insurance during the months when forage production is critical. During that period, a loss in forage production will significantly impact production and economic results.
We will distribute the insurance throughout the year using the following percentages: 30% for the interval April-May, 30% June-July, 30% Aug-Sept, and 10% Oct.-Nov. The total percentage selected should add up to 100% (Table 1).
Table 1. Protection Table (USDA-RMA)
Results show an estimated producer premium of $2.41 per acre. The estimated Indemnity payment for 2011 resulted in $16.18/acre, which resulted in a net payment of $13.77/acre. Assuming a stocking rate of 15 acres per cow, the net payment per cow was $206.55.
These indemnities might not be enough to cover all the extra costs and hard work during a severe drought. Still, they will help pay for our additional feeding costs when we need them most.
Historical Estimated Indemnities and Net Results
The USDA tool will also provide you with estimated indemnities since 1948. Results for the last 20 years calculate an average net payment of $1.60 per acre above premium costs (Table 2). Indemnities were not high enough to compensate paid premiums in only 7 of the last 20 years.
Table 2. Historical Indemnities and Net-Results.
The Pasture, Rangeland, and Forage Pilot Insurance Program (PRF) is a great program to support producers when rainfall is below average. Most importantly, it supports ranchers to cover extra and higher feeding cots when precipitation is lower than usual.