Mitigate Your Exposure
With input costs climbing steadily over the last few decades, producers have constantly looked for ways to secure more of the risk they take each day. One way cattle and hay producers have found to help mitigate some of the exposure to the changing weather patterns is through an insurance plan offered by the Risk Management Agency of USDA called Pasture, Rangeland & Forage (PRF).
PRF is area based insurance coverage extending to all 48 contiguous states. The plan is designed around collection of rainfall data from several thousand weather stations across the country. The National Oceanic and Atmospheric Administration Climate Prediction Center (NOAA CPC) collects the rainfall data on a grid system across the U.S. that is 0.25 Latitude x 0.25 Longitude.
The area based coverage means a producer doesn’t have to collect the rainfall measurements on their operation. When the data is collected by NOAA, the system uses the four closest stations to the center of the grid the property is in and averages those numbers together with the closest station given a higher percent of the value.
The PRF plan year is January to December. A producer selects periods of time within the year to have the insurance plan called Intervals. These Intervals are two-month periods of time and the data is collected and reported for those days in the interval. An indemnity is paid based on the lack of rainfall within those two-month periods not the entire growing season. For example, a producer may select to have coverage in Interval 3, March-April, and again in Interval 9, September-October. With the help of an insurance agent, producers can determine what dates best fit their operation by looking at historical information on their grid and determining what growing season they have concerns of lack of rainfall occurring.
During the process of creating the insurance plan, a producer can choose a level of coverage for the rainfall index. This level, from 70 to 90 percent, is the level of rainfall below normal that triggers the policy to pay an indemnity. So, for example, if a producer chooses an 85 percent level of coverage and the published rainfall index for the interval is 75 percent, then an indemnity can be triggered for payment. The lower the index, the more benefit the producer can see from the plan. The producer also has the option of increasing or decreasing something called a Productivity Factor for their plan. This factor is a way for a producer to increase or decrease the county base value for their grazing or haying ground from 60 to 150 percent to compensate for production practices on that ground.
The bottom line for most producers is generally, the bottom line. How much does it cost? Premiums are based on a variety of factors in the plan. From the grid your property is in, the intervals selected, the level of coverage, to the productivity factor, these factors all go into calculating the premium. Grazing ground versus haying ground is one factor that can make a difference in the annual premium, too. Worth mentioning when talking about premiums is that the PRF plan has a subsidy available to producers. The subsidy amount depends on the coverage level selected and helps offset some of the cost.
Sales closing date, acreage reporting, and overall deadline for producers to decide and sign up is Nov. 15 of each year. The plans will start the next January with coverage in the intervals the producer selected during enrollment. PRF insurance is only available through licensed crop insurance agents.
Marcus Creasy is a licensed Property & Casualty and Crop Insurance agent residing in Northcentral Arkansas. Along with his wife and three boys, they also own and operate a commercial cow/calf operation.