– Matthew Diersen, Risk & Business Management Specialist, Ness School of Management & Economics, South Dakota State University
The deadline to purchase or change Pasture, Rangeland, Forage – Rainfall Index (PRF-RI) insurance is quickly approaching. The deadline is November 15, 2020 to purchase PRF-RI for calendar year 2021. A producer selects the grid they want to insure. Indemnity payments are computed if the rainfall falls short of the insured level. The indemnity payments can be used to offset the related loss of forage production. At times the product may not work perfectly, but the goal for the insured is long-run viability.
In the 2017 Census of Agriculture, there were 400.8 million acres in permanent pasture, 13.8 million acres of pastured cropland, and 56.9 million acres of forage in the U.S. Most of those acres would be eligible to be insured using PRF-RI. Covered acres have increased from 54.7 million acres in 2015 to 159.9 million acres in 2020. The product is popular on rangeland in the Southwest U.S. Arizona led the nation with 30.0 million covered acres, followed by Texas, Nevada, New Mexico, and Utah. Different metrics are also instructive. Texas lead with policies sold and total liabilities (dollars of coverage bought). Cow-calf states, such as Missouri, South Dakota, Kansas, and Oklahoma round out the top-five states based on policies sold. Florida enters the top five if ranking states by liabilities. Regardless of the ranking criteria, these states share exposure to forage production risk.
PRF-RI can cover grazing or haying with county base levels that make up the price election level. Grazing tends to be more common. If a county base is higher or lower than a producer’s expected forage costs, the insurance can be adjusted using a productivity index. The insurance premium is subsidized, similar to other crops. The subsidy ranges from 51 percent of the premium for the highest coverage level of 90 percent down to 59 percent for the lowest coverage level of 70 percent. That means the producer’s actual cost declines as they go with lower election levels – giving an incentive to purchase something versus nothing.
The on-going wicked aspect of the coverage is the need to select among two-month intervals to insure. Approaches vary when faced with the decision: some producers spread coverage across months to match when they use the forage, others load the coverage when moisture is most important for forage growth, and some spread out the coverage to increase the frequency of collecting. The subsidy, while attractive, can distract from solid choices. For example, the indemnity level (what is paid out) has exceeded the producers’ portion of the premium for every year PRF-RI has been offered at the national level. In aggregate, the coverage pays off. However, that is not the case at the state or local levels. Staying with the coverage over time increases the chance of collecting. It may be challenging to rationalize some intervals, such as the latter months of the calendar year in the northern plains. These months also tend to have higher premium levels and lower frequencies of paying out indemnities than other intervals.
EDITOR’s NOTE: Learn more about PRF-RI in this Ohio BEEF Cattle letter post from a few years ago: PRF: A “Crop Insurance” Program from RMA for Forage Growers