In recent years, drought has been a common occurrence in Texas. The U.S. Currently, the Drought Monitor reported that approximately 90.5% of Texas is experiencing some level of drought as of October 22, 2024 (Fig 1). Producers are increasingly adopting the USDA’s Pasture, Rangeland, and Forage Insurance (PRF), recognizing its crucial role in supporting ranchers during these challenging times. Texas has enrolled 42.8 million acres in this program in 2024 (a 191% increase from 2011). The most exciting factor of this program is that it showed positive net benefit of indemnities over premiums in many cases. But most importantly, it generated significant payments in those years when it was needed most.
Figure 1: Texas Drought Monitor
Pasture, Rangeland, and Forage Insurance Program Review
The deadline for the USDA’s Pasture, Rangeland, and Forage Pilot Insurance Program (PRF) is December 1. 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.
How does it work?
The program does not directly measure the drought effect or the severity of the drought. It only measures the lack of rainfall compared to an average index for that area. The National Oceanic and Atmospheric Administration (NOAA) developed a rainfall index to determine the lack of precipitation in a specific area or grid. Indemnities are triggered when the actual rainfall is below the average historical rainfall.
PRF Example
Like every year, we will use an example to illustrate the benefits of this program. For this example, we will use the USDA support tool (https://prodwebnlb.rma.usda.gov/apps/prf) to help us understand how it works, estimate premium costs, and estimate results since 1948. This year, we will use a 1,000-acre farm (to make it easy) between Childress and Memphis as an example (Grid ID: 17519, Image 1).
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%. However, the program will enable you to assign a productive factor to better match your farm productivity in that area. We also need to select a sample year. Since 2024 has yet to finish, we won’t be able to use it as an example. We will use results from 2023 as the sample year when we were in a drought. Second, we must choose how to allocate the insurance during the year using bi-monthly intervals. 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: 15% for the Feb-March interval, 15% April-May, 30% June-July, 20% Aug-Sept, and 20% Oct.-Nov. The total percentage selected should add up to 100% (Table 1).
Table 1. Protection Table (USDA-RMA)
The tool will show the results for the 2023-year sample. The producer premium was $2.41 per acre. The estimated Indemnity payment for 2023 resulted in $4.67/acre, which resulted in a net gain of $2.26/acre. Assuming a stocking rate of 20 acres per cow, the net payment per cow was $45.2.
Historical Estimated Indemnities and Net Results
One of the most interesting features of the USDA tool is the estimated historical results. We can go back to 1943 and check how much the insurance would have paid in the past. For example, results for the last 30 years had an average net payment of $1.88 per acre above premium costs (Table 2). Assuming a stocking rate of 20 acres per cow, the average net indemnity received per head was $37.6/head. Indemnities did not compensate paid premiums during this period, only six years out of 30. More interesting, not even once did the producer have to pay the whole premium in this example.
The highest payments were in 2010, 1997, 2004, and 2002. The estimated net payments range from $227 to $91 per head during these years.
Table 2. Historical Indemnities and Net-Results per Head
The Pasture, Rangeland, and Forage Pilot Insurance Program (PRF) is a great program to support producers when rainfall is below average. Most importantly, it helps ranchers cover extra and higher feeding costs when precipitation is lower than usual. For more information on the PRF, consult the USDA Fact Sheet on Pasture, Rangeland, and Forage Insurance Program. If you’re considering purchasing this insurance, you can find a list of approved agents and insurance companies on the USDA website (https://www.rma.usda.gov/tools-reports/agent-locator).