PRF coverage is for a not-so-rainy day
November 6, 2014
From hail to blizzards, drought to disease, ranchers know all about risk. What they're still learning, though, is how to manage that risk.
Bill Slovek, a cattle producer from near Philip, S.D., has been using the Pasture, Rangeland, Forage (PRF) insurance program since it was first offered in 2007. "I think the main thing is it's not perfect, but it's the best we're going to get. I don't think we can depend on big disaster programs coming in after the fact. The government is giving us the opportunity to buy insurance and you'd better get it or we'll be up a creek without a paddle. I'm not much for government, but I think that's fair," he said.
PRF, in its current form, is based on rainfall. Producers can insure their pasture, rangeland or hay ground with the program, and it will pay if the rainfall is below a certain level, based on historical data and producer preferences. Between 51 and 59 percent of the premium is paid by the government.
The base value of the land is set on a county-by-county basis. In most counties in South Dakota that base paymentfor pasture is around $8 or $9. For hay ground that base payment is more than $250. The premium can be adjusted by changing the preferences for the insurance.
Producers can take out the insurance in addition to Farm Service Agency's Noninsured Crop Disaster Assistance Program (NAP), and it will cover rented or leased ground, including public property.
In meetings across western South Dakota earlier this month, Rylan Zwanziger with Silveus Insurance Group talked to producers about what PRF has to offer. At the meeting in New Underwood, one producer of the approximately 10 present was using PRF. At the Philip meeting, Slovek said he was the only one of about 30 ranchers who was using the program. One of the major obstacles for producers is that they just don't understand it, according to the comments during the meeting.
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Slovek, who got the insurance through Crew Agency LTD in Philip, said his agent did a good job of explaining it to him. "I don't know if it's complicated, it's just that there are a lot of choices."
Producers can choose which months they want to insure their land for, what level of rainfall they want to trigger the payments at and for what percentage of the base price they want it insured.
Rusty Olney, an insurance agent with Crew Agency, said his company promotes the program as a risk management tool. "We aren't in this for a roll-of-the-dice-type deal. We're in it for a risk management tool. When you're in it for risk management it's pretty easy to understand."
The other way to invest in the PRF program is to put your acres in the months when you think it's most likely to pay off, meaning when you think the rainfall will be below normal. "There is no right or wrong," Slovek said. "It's just how you're looking at it. Do you buy the insurance with the hope of making money, or for true drought protection?"
Olney said his agency encourages producers to use the insurance for drought protection. "We tell people that you need to sit down and figure out when you need moisture for your operation to work. Don't be trying to second-guess when you think you'll get paid. If we don't get moisture in January and February it's not a big deal. But if it doesn't rain from April to September, that's when you're going to want to be paid."
Slovek said he tried to make educated decisions about his insurance coverage. "I do a little research. I don't just walk in there and throw darts at the months and see where I want to invest." He said he looks at the historical data and long-range forecast provided by CattleFax.
In the drought of 2012, Slovek said the PRF insurance was a good investment for his family's ranch. "It made the difference between selling cattle or keeping our numbers up where they're supposed to be. This is still not on a level playing field with crop insurance, but it gives cattle people and grassland people a little something to protect them from drought."
Olney said even this year, which seems to have been a wet year, saw producers in South Dakota get payments because precipitation was low through April.
The rainfall is measured at National Oceanic Atmospheric Administration sites, like airports, and both Olney and Zwanziger said it's not a perfect system. Sometimes the sites report rain when the producer didn't get any, and sometimes the opposite happens. Slovek said he has rainfall records for his ranch for the last 10 years, and for the most part, the government's numbers match up with his, at least on an average basis.
The deadline to sign up for PRF is Nov. 15, but the premium doesn't have to be paid until September of 2015. F