2017 PRF-RI insurance deadline Nov. 15
October 20, 2016
BROOKINGS, S.D. – Landowners and producers with pastures may want to revisit Pasture, Rangeland and Forage (PRF) insurance. November 15, 2016 is the deadline to purchase or change coverage for the 2017 calendar year.
"Pasture, Rangeland and Forage insurance is available for 2017 in South Dakota and neighboring states based on a Rainfall Index, similar to a year ago," Matthew Diersen, Professor & SDSU Extension Risk/Business Management Specialist.
Diersen explained that the 2017 base price used to pay out for grazing losses has been adjusted from the 2016 rate.
About Pasture, Rangeland and Forage Rainfall Index Insurance
The insurance, Pasture, Rangeland and Forage Rainfall Index, 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," Diersen explained.
Unlike direct insurance which insures against losses to yields, with Pasture, Rangeland and Forage insurance, haying and grazing is covered against rainfall shortages.
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In 2016, there were a record 1,699 Pasture, Rangeland and Forage policies sold in South Dakota. These policies covered 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," said Diersen, referencing data from the 2012 Census of Agriculture.
Diersen added that 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," Diersen said.
He explained that producers have to select a coverage level from 70-90 percent of the grid base. "Most 2016 acres in South Dakota were covered at the 90 percent level despite its lower subsidy rate," Diersen said.
Producers also have to pick a productivity level from 60 percent to 150 percent of the county base, which Diersen explained, makes the base price an important factor.
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.
The premium subsidy is comparable to other crops and the historic loss ratio is favorable for insured parties, suggesting long-run positive returns to buying the insurance. Premiums for PRF-RI vary by:
* Use for grazing or haying;
* Coverage level;
* Productivity level;
* Intervals chosen, and;
* Grid location.
There are many ways to allocate coverage Diersen said. He added that not all acres need to be insured.
"Selected acres are allocated across 11 two-month intervals that cannot overlap a given month," he said.
The loading of acres within a given interval has to be 10 to 70 percent of the total acres insured. For risk reduction, spreading out coverage across intervals is a sound strategy, such as Example Loadings A (Table 1).
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," Diersen said.
The Bottom Line
Concentrating coverage in too few intervals may reduce the diversification effect of using multiple intervals.
"Loading up coverage in a specific interval may be attractive in the very long run, e.g., 70 percent in May-June. However, the historic rainfall pattern across intervals at the grid level is fairly sporadic," Diersen said. "There can be long stretches of very normal rainfall, and thus no indemnity payments, when looking at specific intervals in specific grids."
Diersen explained that such spans are mitigated by diversifying across a few different intervals. Using multiple intervals will likely result in more consistent indemnity payments and a shorter duration of realizing benefits from the coverage.
For more information, interested insurable parties can contact a crop insurance agent or go online to the Risk Management Agency's PRF page: http://www.rma.usda.gov/policies/pasturerangeforage/.