An insurance management program can help hay and forage producers protect their bottom line in light of the drought conditions that persist on the high plains.
James Mitchell, an assistant professor and extension economist in the Department of Agricultural Economics and Agribusiness at the University of Arkansas, spoke about the Risk Management Agency program during a recent webinar from the National Cattlemen’s Beef Association, “Pasture, Rangeland, Forage Program: A Tool for Your Toolbox.” The RMA is overseen by the United States Department of Agriculture. RMA programs are associated with crops, but in recent years Congress has authorized the agency to expand into other agricultural production sectors to help with risk management. Mitchell studied the pasture and range segment to help inform farmers and ranchers when considering whether a pasture, range and forage policy is right for their operation.
“Risk management is about taking certain risks off the table,” he said, adding that a risk management plan is a strategy that subjectively and objectively looks at how to limit risk. The pasture management plan, which includes fodder production, was first tested as a pilot program in 2007 and then rolled out nationwide about five years later. Coverage is a subsidized product and a portion of the premium is underwritten by the federal government.
The top five states listed in 2021 were Texas, about 29.6 million acres; Arizona, 28.4 million acres; Nevada, 25.2 million acres; Utah, 16 million acres; and New Mexico, 14.7 million acres. About 172 million acres in the country were registered nationally in 2021. Five years ago it was a third the size, he said.
Risk management can focus on two areas over which producers may have little or no control – prices and actual production of livestock, forage or crops – which may be different from what producers expect.
An insurance policy can help a rancher, Mitchell said, as they face risks from pests, weeds, wildfires and inputs such as fertilizer and fuel. Decisions about soil fertility and quality also impact forage production.
What happens when there is not enough forage produced? The herder has to buy extra feed and scramble to find and buy hay. He may even have to reduce or liquidate a herd of cows or change his calf marketing strategy.
“It’s a high consequence result,” Mitchell said.
Most livestock webinars are about options, futures, livestock risk protection program or futures, but few are about pasture, forage and range because it is a relatively new program, he said.
“When you think about it, what about the risks of fodder production?” Mitchell said. “Besides this insurance product, we rely primarily on farm management decisions for forage risk management.”
Assessing a forage insurance scheme as a risk management tool could prove useful for producers, he said. This is a single risk program based on the rainfall index and a lack of humidity is the trigger point.
“We use rainfall as an indicator of forage production,” Mitchell said, adding that hay type, bale size, and cool-season versus warm-season forages are hard to quantify for a product. insurance.
The Pasture, Rangeland and Forage program is based on a precipitation index using the equivalent of a 12 by 12 mile grid at the equator and the dimensions will be slightly different in each state which is different from insurance -harvest, he said. If the breeder’s property overlaps the grid, he can choose which grid he should be placed in. Precipitation totals are based on National Oceanic and Atmospheric Administration reports, which are collected daily, and these numbers help establish a baseline. Mitchell said there are more reporting stations on the southern plains than on the less populated northern plains, which he hopes will see improvements in the future to help these ranchers.
A grid ID should be selected based on the location of the identified land, and growers should keep that number handy, Mitchell said. Producers can see how it works for them using the calculator at https://prodwebnlb.rma.usda/gov/apps/prf.
In his example, Mitchell used Hempstead County, Arkansas. NOAA collected rainfall data for 11 two-month intervals. The data goes back to 1948 and the precipitation index uses a weighted average of the four stations closest to the center of the grid. The index reflects precipitation relative to the long-term average for a grid. Indices have an expected index value and an actual index value.
Normal is defined as 100 on the index watch. A precipitation index of 99 or less indicates below average precipitation, while a precipitation index above 101 indicates above average precipitation. An indemnity is triggered when the rainfall is below average and the index is below the coverage level chosen by the producer.
Accordingly, a grower has several key considerations.
He will have to indicate if he has acres of pasture or acres of hay. Premiums are lower for acres of pasture and therefore if a loss occurs, the compensation payment is lower. Insurance for hay production is more expensive but also offers a higher payout in the event of loss.
A producer will have to choose the acres and he does not necessarily need to cover all of his forage acreage. The coverage level is the value of the index that triggered the payment of an indemnity when the rainfall realized is below the normal expected range and the payment varies from a maximum of 90% to 70% in increments of 5%.
Higher levels of coverage are more expensive and more likely to trigger a payout, he said.
In his calculation of the productivity factor. Mitchell notes that the USDA-RMA had a base county value for forage production of $59.50 per acre in Hempstead County. The producer must choose the part of the base value that he wants to cover.
The final decision is on the 2 month index intervals and the breeder will have to decide between acres of hay or pasture. He will have to choose intervals of 2 months to protect himself from weak precipitation. He must choose a minimum of two 2-month intervals; he cannot exceed six 2-month intervals and he cannot choose overlapping intervals.
The producer also chooses how to distribute the coverage over the intervals with a maximum of 60% and a minimum of 10% for one of these 2 month intervals.
In his comparison, Mitchell says ranchers could distribute coverage evenly over intervals based on forage availability throughout the year, they could match the growing season for a specific forage like a cool season crop. , or target specific intervals that might match growth and harvest expectations. .
Farmers need to consider forage production and risks. They could also focus on maximizing the likelihood of receiving a payout. In Arkansas, September and October are more likely to be a dry period, but the policy will be more expensive for those months. This average pasture premium is $10.69 per acre. For hay, the premium would be $38.57 per acre.
“A policy for acres of hay is much more expensive than acres of pasture,” Mitchell said, adding that there are also variabilities that are taken into account by insurers.
In his comparison, Mitchell uses the total insured acres of 100 acres of pasture. The base county value is $59.50 per acre for pasture. At 90% coverage (which translates to $53.35 per acre), that means the coverage level for 100 acres is based on $5,355. A producer then has the two-month intervals he wishes to apply.
The level of subsidy is 51% and the producer chooses 2 month intervals then uses the calculator and he can see what the payments could mean and there are also variables for the producer’s share for his premium . It also projects the payment of the indemnity.
On his aggregate intervals, a grower in Arkansas paid $4.51 per acre to purchase the $53.55 per acre cover and received a claim of $9.28 per acre, meaning that he earned nearly $5 an acre in protection.
He encouraged growers to look at past production when the risks are highest for their operation. The PRF policy can be purchased from a crop insurance agent.
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