CATTLEFAX TRENDS
PASTURE, RANGELAND AND FORAGE INSURANCE Between volatile market swings and relying on Mother Nature, doing business in the cow-calf segment can bring many challenges and risks. There are several different options producers can utilize to protect against a price drop. While the selection is limited, there is also a risk management tool to help cover the necessary precipitation needed for forage production. Purchasing Rainfall Index (RI) – Pasture, Rangeland and Forage (PRF) insurance is a way producers could be compensated during a dry year. While a single policy may not make an operation whole after enduring a dry period, it is a tool that can work well with other strategies. PRF is technically a form of crop insurance provided by the USDA’s Risk Management Agency (RMA). Pasture and hay acres are both eligible for the program. Enrollment begins in September, and the deadline was extended to December 1 this year instead of November 15 like in past years. Producers would be purchasing a policy that covers the following calendar year – 2022 in this case. The program is offered in all counties within the 48 contiguous states. It is important to understand RI-PRF insurance protects against one thing – precipitation. Essentially the policy protects against precipitation falling below the longterm average in a specific area. There is no forage or crop production data used. While it is not very likely, you could have record hay production and still receive an indemnity due to precipitation falling well below the average. RI-PRF should also not be mistaken as drought insurance. It does not specifically protect against high temperatures or extreme wind conditions, that may intensify drought. The RI-PRF program uses a grid-based system, not county boundaries, to measure precipitation amounts. Each grid covers 0.25 degrees latitude by 0.25 longitude and is identified by the USDA. National Oceanic and Atmospheric Administration (NOAA) Climate Prediction Center (CPC) collects precipitation amounts from at least four different weather stations each day for one single grid. As a result, the official precipitation data may not match the amount a producer measured. Some properties may cover multiple grids. If the land is contiguous, the producer can insure all the property in one 20
November 2021
grid or separate the land and assign portions into different grids. The grid(s) the producer selects will be the only location(s) that the precipitation amount matters for the insurance policy. If the property is not contiguous, then each area will be assigned to the respective grid. The long-term average precipitation that is used as the benchmark is calculated from 1948 to two years prior to the crop year. The 2022 calendar year will include data from 1948 to 2020. With over 70 years of data, a few really dry or wet years will not significantly impact the threshold. The long-term measurement is known as the expected grid index – equaling 100. The precipitation that is collected during a crop year, or final grid index, is expressed as a percent relative to the long-term average. A final grid index above 100 is above average precipitation, while an index below 100 represents below average precipitation. The precipitation data for a calendar year is broken down into 11 two-month time intervals: • January and February • July and August • February and March • August and September • March and April • September and October • April and May • October and November • May and June • November and December • June and July A producer must select at least two intervals, and a maximum of six. Because producers are only allowed a maximum 50% of value per period, and the total must equal 100%, at least two intervals must be chosen. Only six intervals are allowed because there cannot be any overlap of the months. For example, producers cannot select JanuaryFebruary and February-March. Picking logical intervals is one of the most critical components for this program to be beneficial. One might consider what time of the year has the greatest impact on forage production. Seasonality of historical precipitation should also be considered when selecting intervals. If the summer months are typically dry in your area and the long-term average moisture is very low, it would be difficult for precipitation to drop far enough below to collect an indemnity. Producers have the option to cover 70 to 90% of the
