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Minimizing risk with PRF insurance

Laura Handke for Progressive Forage Published on 31 October 2018

Since the program piloted in 2009, Missouri and Kansas grazing livestock producers have had access to pasture, rangeland and forage (PRF) insurance coverage as a tool to mitigate the risks of drought. Today, producers in all states have access to the coverage and the risk management it provides.

Brian Huhmann, a licensed PRF insurance agent who operates a cow-calf operation in the Missouri counties of Morgan and Moniteau, says the coverage is something his operation will never be without.

“Until 2009, we never had any type of protection for grazing and hay. I signed up in 2009 for the 2010 year and have bought coverage every year since. The cost is around $5 an acre – you can’t feed very many cattle for $5.

“I saw the difference the coverage made for my operation during the drought of 2012. I had just started to keep back replacement heifers for my herd and, when the drought hit, those would have normally been the first animals to go to town. Because of the coverage I had and the payout I received, I was able to retain those animals and sell their calves in 2014, when cattle prices were at a record high,” he says.

How it works

The insurance coverage is based on rainfall data from the National Oceanic and Atmospheric Administration’s Climate Prediction Center. Rather than basing the coverage area on a county-by-county basis, such as the Farm Service Agency’s Noninsured Crop Disaster Assistance Program (also known as NAP), the Risk Management Agency’s PRF coverage recognizes 18-mile-by-18-mile grids that do not follow geopolitical boundaries, with each producer providing a point of reference for grid assignment.

Two production options are available for coverage: hay and grazing. And even though acreages can only be covered under one production option, separate policies on the same farm for separate usage is allowed. This allows a producer to insure both hay ground and grazing acres on the same farm, as long as they are designated in separate fields.

Producers must choose at least two two-month periods that do not overlap to cover. Most select grazing months when a lack of rainfall will be most detrimental to their operation, generally between May and October.

Payouts are based on data collected from multiple weather stations, with the historical index value for the grid set to a 100 percent level. Producers may elect different percentages of coverage between 70 and 90 percent of the historical index value of rainfall. When the actual rainfall drops below the elected coverage, payouts are provided.

New for the 2019 coverage seasson: PRF coverage has been modified to incorporate the value of forage production per acre, grazing fees and state-level pasture rental rates in the county-based value calculations. The amendment to the coverage will help producers recoup some of the costs associated with the upward trend of pasture-rental rates in the majority of states.

Making the commitment

For Kansas State University’s director of the farm analyst program, Duane Hund, the benefits of PRF insurance coverage far outweigh the cost of the product (Figure 1).

PRF insurance

The Paxico, Kansas, cattleman – who manages his own herd as well as taking in and managing cattle through custom grazing – says his premiums are a little over $3.50 per acre and are definitely worth the opportunity to offset the drought-related losses he has incurred.

Having looked into the program previously, Hund failed to make the November sign-up date for the 2016 coverage, putting his participation a year behind his intended coverage period. After learning all grazable acres were eligible for coverage, Hund enrolled his contracted cattle acres as well for the 2018 grazing season.

After two years of participation, the coverage is a risk management tool Hund doesn’t intend to be without in the future.

“The drought and cold spring temperatures decreased our hay yields by about 40 percent,” Hund says of the 2018 haying and grazing season, “and cattle only gained about 60 percent of what they normally do because of the drought conditions. The payouts help offset those losses and will make a lot of difference when I’m looking at my break-even numbers.”

Even with the relatively low cost of coverage and multitude of policy options, participation is low in both Missouri and Kansas, with fewer than 10 percent of eligible acres enrolled in both states.

University of Missouri Extension economics specialist Ryan Milhollin says while there has been an upward trend in coverage, the program has a lot of room for growth.

“We have about 7 million acres of permanent pasture and 3 million acres of hay harvested in the state of Missouri, and we are only insuring about 500,000 of those acres,” says Milhollin (Figure 2).

PRF Insurance “With the drought, we are getting a lot of questions on the coverage from producers with smaller herd sizes. This is a good risk management tool for both large- and small-scale (grazing animal) producers.”

All sources cited in this article believe a general lack of information is one of the greatest limitations to the increase in producer adoption.

“The University of Missouri received a grant to provide outreach and education throughout Missouri a few years ago,” says Milhollin. “We initially received some interest and questions, but the 2018 drought has really been what has sparked a lot of the new conversation.”

From an agent’s perspective, Huhmann says many diversified producers (those raising both row crops and grazing livestock) already feel inundated with insurance options, and the introduction of one more solution can be something many are not receptive to.

“Some crop and livestock guys already feel like they are insurance poor, but this is one coverage I wouldn’t be without. For the cost, it really is a good product that pays when you need it. Like other insurances, this isn’t a moneymaker. What it does is allow a producer some flexibility in tough times,” Huhmann says.  end mark

To learn more about PRF insurance, visit the RMA PRF website and talk with your local insurance agency and extension professionals prior to the 2019 sign-up deadline of Nov. 15, 2018.

Laura Handke is a freelance writer based in Kansas.