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Safety-net options for forage producers

Jennifer Garreau Published on 27 February 2015
Drought Insurance

The combination of recent droughts and the recently adopted federal farm bill has given hay and forage producers new options with Pasture, Rangeland, Forage Insurance (PRF) – a risk management tool available to producers to offset loss of forage production due to drought conditions.

Due to difficulties quantifying the price and yield for forage crops (particularly grazing), standard crop insurance products are generally not an option for insuring forage production. PRF changes that.

Administered by the USDA Risk Management Agency (RMA), PRF is a pilot crop insurance program offered in 29 states that provides producers insurance protection for perennial forage produced for grazing or harvested for hay.

PRF is sold through private crop insurance companies and is government-subsidized from 51 to 59 percent, depending on the level of coverage chosen.

A study at the University of Illinois found the PRF program increased land values for rangeland and forage land 4 to 9 percent due to the crop insurance program.

For the majority of the U.S., the program is based on a rainfall index. In Oregon, Nevada, Idaho, Wyoming, Utah, Arizona, New Mexico and the western half of Colorado, the program is based on the vegetative index.

Producers receive an indemnity payment when either the rainfall index or vegetative index in their area falls below the normal historical level.

The rainfall index uses National Oceanic and Atmospheric Administration Climate Prediction Center (NOAA-CPC) data. The areas where the rainfall index is available have been divided into 12-by-12-mile grids.

These grids do not follow county lines or township boundaries. The data does not directly reflect the rainfall amounts measured at a specific weather station within a particular grid. Instead, it reflects an average rainfall of nearby weather stations for each grid.

While most group risk insurance products provide coverage at the county level, this program provides coverage at the grid level, which provides a more accurate estimate of rainfall for a particular area than a county measurement or an individual producer’s production.

Darren Limesand, crop insurance agent at Western Frontier Insurance Agency, says, “However, the rainfall index value for your grid may not accurately reflect the rainfall on your property.

In more remote areas there isn’t always a weather station every 12 miles apart; with radar estimates it’s better. Timing of rainstorms can also be a problem. A large storm can push the index above the guaranteed levels but, if we were dry for several weeks before that, forage production losses have already occurred.”

Aaron Berger, University of Nebraska Extension educator, says, “As you think about pasture, range and forage growth, there are really three things that affect forage growth on hay lands. First is plant vigor, which is tied to the plant’s health and the available nutrients to that plant.

Second is the available soil moisture, and the third is air temperature. PRF insurance only addresses one of these factors, which is important to remember when using it as a risk management tool.”

The vegetation index uses data from the U.S. Geological Survey Earth Resources Observation and Science data center, called the Normalized Difference Vegetation Index (NDVI). Satellite images measure the biomass of vegetation and are used to estimate plant condition in a 5-by-5-mile grid.

“One concern with the vegetative index is that while the satellite might see greenness, it doesn’t always reflect the quality of the forage,” Berger says.

Grid locations can be found by using the grid locator on the RMA’s website. Producers must use the grid that their acreage is in and have the option to only insure those acres that are the most important to their operations.

Producers choose whether to cover the insured area as grazing or hay land. The insurable value for grazing acreage is considerably lower than the value for hay, and therefore the insurance premiums are also lower. Leased land and grassed waterways in and around row crops cut for grass hay can be insured, but land in either the Conservation Reserve Program or the Wetlands Reserve Program is not eligible.

“Irrigated land planted to perennial forage can also be insured. Sometimes I visit with producers who say ‘Well, I have irrigation on that ground, so I don’t need insurance on it.’ I consider that a missed opportunity. If you’re in a drought situation, you will have to pump more water, and with this program you can be compensated for the increased pumping costs that you will have,” Berger says.

cattle grazine

RMA has established a county base value per acre for each county based on income received for haying and grazing under normal rainfall conditions. These values are different for grazing and hay acres.

At signup, which must be done each year by Nov. 15, producers will choose a guarantee level of 70, 75, 80, 85 or 90 percent of the baseline county value at which insurance payments are triggered. Producers must also choose a protection factor between 60 and 150 percent of the county value.

“Producers will want to select the amount of protection based on the forage value that best represents their specific operation, as well as the productivity of their land, as the months for cool- and warm-season forage production differs throughout the U.S.,” Limesand says. “To determine productivity, use the expected value of hay production coming from the insured land. For grazing land, use area pasture rental rates. You can also use the value of purchasing replacement forage.”

The premium cost will increase with higher coverage levels and productivity factors.

Producers using the rainfall index also must select at least two index intervals (two-month time periods) in which precipitation is important for the growth and production of forage crops. Those using the vegetation index must select one three-month time period.

“Because forage grows differently in different areas, it is important for farmers and ranchers to know which types of grasses they have on their property and when they grow to determine the most appropriate coverage plan,” Limesand says.

Berger says producers should think about what species of plants they have and identify the plants’ rapid growth windows.

A decision tool is available at www.rma.usda.gov/policies/pasturerangeforage that allows producers to estimate premiums and indemnities from 1948 to the current year to see how the program would have performed if they were enrolled in previous years. Producers can also view the historical rainfall indices for their areas using the tool.

“PRF is best suited for producers whose production tends to follow and correlate to the historical average rainfall patterns for the grid, so it is important for producers to look at the historical indices,” Limesand says.

Losses due to fire, hail, freezing or insects are not covered under the PRF program. Producers are not required to report yield histories or maintain production records for the PRF program. Nor do they need to file a claim or submit any documentation for a loss.

Payments are made after rainfall or vegetation index data are collected for each two- or three-month index interval and provided to RMA and crop insurance companies, which means payments may be issued multiple times in a year.

“The question I often get asked is ‘When is taking this insurance prudent?’ And candidly, I think if you are going to use this insurance product, this is something you purchase and utilize year in and year out. Utilizing this on a year-by-year basis where you think ‘Well, last year was pretty good, and I think next year will be good … I don’t think I will take it out.’ I don’t think is the right way to use this. I think it’s something you take out every year. You stay with it, if you want to get the benefits from it,” Berger says.  FG

Jennifer Garreau is a freelance writer based in South Dakota.

PHOTO
Photo courtesy Kevin Brown.

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