Insurance for Pastures and Hayfields

As it enters its fourth year of availability nationwide, the rainfall insurance program gives beef producers a no-fuss way to shore up income when a shortfall in rain reduces production of forages for grazing or haying.

Officially dubbed the Rainfall Index Pasture, Rangeland, Forage (PRF) program, the crop insurance coverage for beef producers was launched as a pilot program in 2007 by the USDA Risk Management Agency. In 2016, the program was broadened to provide coverage to producers in all 48 contiguous states.

“The Risk Management Agency started the rainfall insurance program because – unlike crop producers – ranchers have historically not been able to insure their crops of forages for grazing and haying,” says Kansas State University agricultural economist Monte Vandeveer.

“The insurance coverage is based on rainfall rather than yield, because forage yields from haying and grazing are difficult to measure,” he says. “The intent of the program was to provide funds to producers to purchase replacement feed for livestock so cattle don’t need to be sold.”

What it covers

The program covers only established stands of perennial forages intended for either grazing or haying. It provides coverage for a wide variety of conditions, including differences in growing seasons and forage types.

The coverage is sold by private insurance agents. However, the USDA pays a premium subsidy of as much as 51% to 59% of the premiums.

A region’s historical rainfall amounts and a producer’s chosen level of coverage affect cost. “Cost varies widely,” says Vandeveer. “Here in Kansas, it’ll double from the western part of the state to the eastern part. For example, a producer in western Kansas choosing the highest level of coverage would pay $3.24 an acre on 2,500 acres. The policy would have the potential to pay back nearly $80,000.”

The PRF program is governed by a rainfall index. This is based on weather data collected and maintained by the National Oceanic and Atmospheric Administration (NOAA) Climate Prediction Center. The index reflects how much precipitation is received relative to the long-term average for a specified area and time frame.

Documented rainfall amounts for a given area are drawn from precipitation data collected at NOAA climate reporting stations. Forage-producing lands are allocated to grid areas measuring 0.25° latitude by 0.25° longitude. In the central U.S., a grid is about 13×17 miles, and the grid’s rainfall index is calculated from rainfall data gathered at four NOAA stations nearest the grid.

“All the land in the grid receives the same index value, regardless of rainfall amounts actually measured in producers’ rain gauges,” says Vandeveer.

Rainfall indexes are generated for two-month periods throughout the year. Producers can then choose insurance levels on individual PRF policies for coverage as high as 90% of the long-term precipitation averages for their grid area during those specific time periods.

When purchasing an annual PRF policy, you must select at least two two-month periods for insurance coverage. Your choice of time period will, of course, be determined by the time period most critical for precipitation for a given forage type.

“The index values are published about six weeks after the end of each two-month time period,” says Vandeveer. “If the rainfall index for a given grid triggers an insurance loss for the level of coverage you have purchased, you typically receive a check soon after those index values are announced.”

Because the process depends on federal documentation of rainfall, you are spared the documentation process required of crop producers filing for losses against their federal crop insurance policies.

The program offers an online decision-maker to help you decide whether or not the PRF offers a helpful tool for managing the effects of drought on your forage lands. Access the tool at https://prodwebnlb.rma.usda.gov/apps/prf.

Sales closing date is November 15, 2019, for 2020 participation in PRF.

“Crop insurance in general, and PRF in particular, survived the 2018 Farm Bill debate with no major changes and with funding basically intact,” says Vandeveer.

“The biggest recent change to PRF was a significant review of the county-based values – the dollar value of forage production per acre set by the Risk Management Agency,” he continues. “Producers can adjust this amount up or down, depending on whether they want more coverage or not.”

one part of plan

Because PRF was available in North Dakota as a pilot program, Dustin Roise, who ranches near Powers Lake, North Dakota, has been able to purchase coverage annually since 2008.

“Overall, the insurance has been beneficial to us, and we use it as one of the tools in our drought-management plan,” he says. “However, the program is not perfect. The biggest problem is the way the data is collected and the accuracy of it.”

Because of the distance of his ranch from the nearest NOAA reporting stations documenting rainfall amounts for his insurance policies, the amount of documented rainfall can differ from the amount he actually receives.

“Last winter, we were really wet. Yet, we actually collected a payment for that time period,” he says. “Last year, because of a shortage of rainfall on our land, I was expecting to receive a payment of $45,000 for July and August. We got zero.”

Nevertheless, over the course of nine years in the program, Roise has received $10,000 more than the amount of combined premiums he has paid.

“My annual premium for the last couple of years has been about $55,000 for 4,788 acres (3,614 acres of grazing land and 1,174 acres of hayland),” he says. “Because half of the premium is subsidized, the actual premium I pay is just over $27,000. Returns from the program have covered the premium in all but four of the past nine years.”

Roise purchases the highest level of coverage and spreads it out over multiple two-month periods. “For us, it doesn’t matter when we get the moisture,” he says. “I believe that spreading the coverage throughout the year spreads the risk.”

Roise considers the rainfall insurance to be just one of the tools he uses to manage the effects of dry weather. “You can’t rely on it solely to save you from drought because of the way the data is collected, but it does help,” he says.