2017 Pasture, Rangeland, Forage Rainfall Index (PRF-RI) Insurance

By Matthew Diersen

Professor & SDSU Extension Risk/Business Management Specialist

Landowners and producers with pastures may want to revisit Pasture, Rangeland, and Forage (PRF) insurance. PRF is available for 2017 in South Dakota and neighboring states based on a Rainfall Index (RI), similar to a year ago. The 2017 base price used to pay out for grazing losses has been adjusted from the 2016 rate. November 15, 2016 is the deadline to purchase or change coverage for the 2017 calendar year.

About PRF-RI Insurance

The insurance, PRF-RI, relies on a relationship between rainfall timing and forage production amounts. Thus, producers insure against low precipitation during specific intervals for localized grids that ideally match their haying or grazing needs. Producers are likely more familiar with direct insurance, for example, they often insure wheat against losses to their wheat. With PRF-RI, haying and grazing can be covered against rainfall shortages.

Selecting Coverage

In 2016 there were a record 1,699 PRF-RI policies sold in South Dakota covering a record $104 million of production. The 2.2 million acres insured in 2016 was not a record level and was less than 10 percent of the 22.5 million acres of permanent pasture and rangeland across South Dakota (2012 Census of Agriculture). A limiting factor continues to be uncertainty about how to best select rainfall intervals.

Rainfall is grid-level and not farm- or ranch-level when measured. Producers have to pick a coverage level from 70-90% of the grid base. Most 2016 acres in South Dakota were covered at the 90% level despite its lower subsidy rate. Producers also have to pick a productivity level from 60% to 150% of the county base, making the base price an important factor.

Indemnity Payments

Any indemnity payment is based on a base price level that has been set at $190 per acre for non-irrigated haying acres for 2017 in South Dakota and from $19.50 to $39.80 per acre for grazing (Figure 1). The grazing base levels have been adjusted from 2016, but may still align with reported grazing rates when using productivity factor adjustments.

Premiums

The premium subsidy is comparable to other crops and the historic loss ratio is favorable for insured parties, suggesting positive returns to buying the insurance. Premiums for PRF-RI vary by:

•     County.
•     Use for grazing or haying.
•     Coverage level.
•     Productivity level.
•     Intervals chosen, and
•     Grid location.

Spread-Out Coverage

There are many ways to allocate coverage and not all acres need to be insured. Selected acres are allocated across 11 two-month intervals that cannot overlap a given month. The loading of acres within a given interval have to be 10-70% of the total acres insured. For risk reduction, spreading out coverage across intervals is a sound strategy, such as Example Loadings A (Table 1).

Table 1. Example Loadings A

Concentrated Coverage

If a producer wants to concentrate the coverage, selecting higher loadings for specific intervals becomes more challenging, such as Example Loadings B (Table 2). Ideally, a producer will know key months that a lack of precipitation would result in less forage production.

Table 2. Example Loadings B