Risk management is the key to any successful operation – and that includes income from utilizing pasture and forage acres. Many operations use pasture and rangeland to supplement feed costs, either by grazing or growing hay. For this reason, the Pasture, Rangeland and Forage Insurance (PRF) was created to cover replacement feed costs that can occur when there is too little rainfall in a given area. However, since coverage isn’t based on an individual’s loss, PRF can be a little more complex than typical crop insurance. Producers can use the following guidelines to help build a policy that works for their operation.
How It Works
Pasture, Rangeland, and Forage is based on a grid system that tracks rainfall daily. The National Oceanic and Atmospheric Administration Climate Prediction Center (NOAA CPC) is used to pull accurate weather data from around the grid. At the end of each interval, the USDA’s Risk Management Agency (RMA) releases a final index by grid, that establishes if a client will have a claim dependent on their coverage. You can find where your operation falls here.
Producers also need to establish if the land is haying or grazing ground. Traditionally haying ground is worth more and will cost more to insure. Grazing ground is valued less on a per acre basis and is a cheaper alternative. According to the Risk Management Agency, grazing ground should be used solely for livestock to roam and feed on, while haying is defined as using mechanical equipment to sever the plant and then cure the grass. For some operations, both haying and grazing are done on the farm. In this scenario, farmers need to make sure his or her costs are covered and analyzed if haying or grazing fits better for the operation.
Choosing an Insurance Interval
Every operation is different. Producers interested in PRF will need to look at where coverage needs to be placed. Picking at least two, 2-month time intervals is needed to set up a policy. No two months can overlap, and you can choose any out of eleven intervals. Most large insurance companies can show you a history of what intervals have paid and how much. Farm Credit cautions its clients against choosing what’s best for their operation solely based on their interval’s history. The goal is to set up a product that helps when it is needed. The same can be said about a strategy placing some of the liability in every interval.
After the intervals are chosen, the next step is to determine the percent of value for each interval. The sum of all percent values should add up to be 100 percent, or the total value of the policy. For example, say Farmer A picks the intervals of March/April, June/July, and September/October. Farmer A believes that the summer time carries the most risk for his operation and wants to weight his intervals like the following: March/April at 25 percent, June/July at 50 percent, and September/October at 25 percent. This strategy allows Farmer A to have more coverage during the time he or she needs it.
Weighing Coverage and Productivity
Finally, farmers need to choose a coverage level and productivity factor. These levels can be chosen anywhere from 70 to 90 percent for coverage and 60 to 150 percent for the productivity factor. The higher the coverage level, the lower the subsidy. We generally like to keep this level at 85 to 90 percent and adjust the productivity factor if a client wants to cheapen their policy.
The productivity factor is how you can buy up the dollars per acre the RMA says your ground is worth per acre. For example; a farmer’s pasture ground may be worth $55/acre. They choose to weight the particular interval at 50%, have a coverage level of 90%, and a productivity factor of 150%. The total liability for that interval would be calculated by taking $55*90%*150%*50%= $37.13 of total liability for that interval. To get a feel on how the costs differ, have your local agent run numerous quotes to show you the benefit of increasing or decreasing your coverage. You can also use the online Pasture, Rangeland Forage support tool.
As with any insurance for your operation, PRF works best when you have a strong relationship with your crop insurance specialist. If PRF interests you, reach out to your agent by November 15th to begin the planning process and set your operation up for success.