Using Pasture, Rangeland, Forage (PRF) Insurance to Manage Your Risks

Jeffrey E. Tranel, Colorado State University

National Risk Management Education ConferencePre-Conference Seminar

2013 April 2

Managing Risks With

PRF Insurance

PRF Insurance Option for forage and livestock

producers to manage potential production losses.

PRF Insurance Option for forage and livestock producers to manage potential

production losses.

Group risk plan.

PRF Insurance Option for forage and livestock producers to manage potential

production losses. Group risk plan.

The insurance coverage is single peril. RI = precipitation. VI = vegetative greenness.

PRF Insurance Option for forage and livestock producers to manage potential

production losses. Group risk plan. The insurance coverage is single peril.

Coverage is based on the long-term historical average for the same area of land for the same period of time, not actual production of individual farms or ranches.

PRF Insurance Option for forage and livestock producers to manage potential

production losses. Group risk plan. The insurance coverage is multi-peril, losses caused by natural

occurrences. Coverage is based on the long-term historical average for the

same area of land for the same period of time, not actual production of individual farms or ranches.

Can be used: As a standalone product. In combination with other risk

management strategies or insurance products.

PRF Insurance Option for forage and livestock producers to manage potential

production losses. Group risk plan. The insurance coverage is multi-peril, losses caused by natural

occurrences. Coverage is based on the long-term historical average for the

same area of land for the same period of time, not actual production of individual farms or ranches.

Can be used as a standalone product or in combination with other risk management strategies or insurance products.

Acreage enrolled in other USDA programs (CRP) is not eligible for PRF insurance.

PRF Insurance – Basic Terms

Expected Grid Index– Based on data provided by appropriate data sources.– Determined by Federal Crop Insurance Corporation.– Expressed as a percentage, such that the mean is 100.

Final Grid Index– The final grid index is a proxy (indicator variable) for pasture,

range, and hay production for a specific grid.– Based on the current index for each grid ID and index interval

during the crop year.– Determined by Federal Crop Insurance Corporation– Expressed as a percentage

• Exceeds 100 = index for the grid has an above average value• Less than 100 = index for the grid has a below average value

– Calculated soon after the close of each index interval

Trigger Grid Index– Expected Grid Index x Coverage Level

Index IntervalsProducers must select the appropriate time frames or

index intervals to apply for PRF insurance coverage.

It's important to select intervals when forage/pasture production is critical for your operation.

April-2010S M T W T F S

1 2 34 5 6 7 8 9 10

11 12 13 14 15 16 1718 19 20 21 22 23 2425 26 27 28 29 30

May-2010S M T W T F S

12 3 4 5 6 7 89 10 11 12 13 14 15

16 17 18 19 20 21 2223 24 25 26 27 28 2930 31

June-2010S M T W T F S

1 2 3 4 56 7 8 9 10 11 12

13 14 15 16 17 18 1920 21 22 23 24 25 2627 28 29 30

April-2010S M T W T F S

1 2 34 5 6 7 8 9 10

11 12 13 14 15 16 1718 19 20 21 22 23 2425 26 27 28 29 30

May-2010S M T W T F S

12 3 4 5 6 7 89 10 11 12 13 14 15

16 17 18 19 20 21 2223 24 25 26 27 28 2930 31

Important DatesJanuaryS M T W T F S

1 23 4 5 6 7 8 910 11 12 13 14 15 1617 18 19 20 21 22 2324 25 26 27 28 29 3031

FebruaryS M T W T F S

1 2 3 4 5 67 8 9 10 11 12 13

14 15 16 17 18 19 2021 22 23 24 25 26 2728

MarchS M T W T F S

1 2 3 4 5 67 8 9 10 11 12 13

14 15 16 17 18 19 2021 22 23 24 25 26 2728 29 30 31

AprilS M T W T F S

1 2 34 5 6 7 8 9 10

11 12 13 14 15 16 1718 19 20 21 22 23 2425 26 27 28 29 30

MayS M T W T F S

12 3 4 5 6 7 89 10 11 12 13 14 15

16 17 18 19 20 21 2223 24 25 26 27 28 2930 31

JuneS M T W T F S

1 2 3 4 56 7 8 9 10 11 12

13 14 15 16 17 18 1920 21 22 23 24 25 2627 28 29 30

JulyS M T W T F S

1 2 34 5 6 7 8 9 10

11 12 13 14 15 16 1718 19 20 21 22 23 2425 26 27 28 29 30 31

AugustS M T W T F S

1 2 3 4 5 6 78 9 10 11 12 13 14

15 16 17 18 19 20 2122 23 24 25 26 27 2829 30 31

SeptemberS M T W T F S

1 2 3 45 6 7 8 9 10 11

12 13 14 15 16 17 1819 20 21 22 23 24 2526 27 28 29 30

OctoberS M T W T F S

1 23 4 5 6 7 8 9

10 11 12 13 14 15 1617 18 19 20 21 22 2324 25 26 27 28 29 3031

NovemberS M T W T F S

1 2 3 4 5 67 8 9 10 11 12 13

14 15 16 17 18 19 2021 22 23 24 25 26 2728 29 30

DecemberS M T W T F S

1 2 3 45 6 7 8 9 10 11

12 13 14 15 16 17 1819 20 21 22 23 24 2526 27 28 29 30 31

Insurance Period

• Sale Closing Date• Cancellation/Termination Date• Acreage Reporting Date

Contract Change Date

Rainfall Index or Vegetation Index

Rainfall Index

Vegetation Index

Rainfall Index (RI-PRF)Allows insured forage and livestock producers to possibly obtain indemnities when a final index of precipitation for a grid (final grid index) falls below average precipitation patterns for the grid (trigger grid index).

Uses data from NOAA Climate Prediction Center Precipitation data reflect a smoothed result

of nearby weather, radar, and satellite estimates to return a total interpolated value for the grid.

The final grid index is a proxy (indicator variable) for pasture, range, and hay production for a specific grid.

Rainfall Index Utilizes weather data collected and

maintained by NOAA’s Climate Prediction Center.

The index reflects how much precipitation is received relative to the long-term average for a specified area and timeframe.

Vegetation Index Utilizes Normalized Difference

Vegetation Index (NDVI) data from U.S. Geological Survey EROS

Measurement of the density of photosynthetic biomass (greenness) on the ground.

Vegetation Index (VI-PRF)

Allows insured forage and livestock producers to possibly obtain indemnities when the final index of vegetation greenness for a grid (final grid index) falls below the insured’s trigger grid index.

Grids

Each grid segment is identified by a grid ID.

RI and VI use different grid sizes, so the grid ID will be different depending on which plan is available.

Grids

Producers must also select a reference point on the grid that best represents the location of the grazinglands or haylands they want to insure.

Property Line

GridsContiguous Acres

May be combined into a single grid, regardless of number of grids and/or counties.

May separate the acreage into separate Grids. Insured using multiple Grid IDs If acreage is in multiple counties,

a new policy for each county must be written.

Grid ID 67895

Grids

Non-contiguous acres within one Grid Insured for one Grid

Non-contiguous acres in different Grids Must use a point of reference for each

separate, non-continuous insured acreage. Must insure the properties separately.

Grid ID 67895

Expected Index Values

Historical data for each grid is used to determine the expected index value for either precipitation or vegetation greenness.

Using Grid IndicesExpected grid index is compared to the final grid index.

Producers may receive an indemnity if the actual final index falls below the trigger grid index, which is adjusted based on the coverage level.

Coverage Level

Expected Grid Index

Actual Grid Index

Trigger Grid Index= 75

(100 x 75%)

Actual result during the

index interval was lower than expected,

so an indemnity may be paid.

100%

75%

44

Display CheckboxesTo see the borders of counties and grid areas, select Counties (blue outlines) Grids (red outlines) Labels (red numbers)

Finding Your Property & Grid

Step 1: Select a Location

StateCountyGrid ID (longitude and latitude that best represents the location of the acreage the producer wants to insure. A specific code is associated with each grid)

See the Grid Locator module to learn more about how to locate the specific grid ID numbers for your operation.

Step 2: Select an Intended Use

1. Grazing area of forage established on land suitable and intended for grazing livestock

2. Haying established area of hay on land suitable and intended for haying

Step 3: Select a Coverage Level

Percentage of the county base value selected for insurance coverage.

90%, 85%, 80%, 75%, or 70%

Producers are required to insure all grids in a county at the same level.

Step 4: Select a Productivity Factor

Reflects the operation’s forage productivity relative to the average forage productivity for the grid

Varies from 60% to 150% 100% indicates the operation’s

forage productivity is similar to the average forage productivity for the grid

Step 5: Select an Insurable Interest

The operator’s share of forage production on the insured acreage

Owner shares are likely to be 100%

Producer’s share on a 50/50 crop share arrangement will be 50%

Step 6: Enter the Number of Insured Acres That Qualify for Coverage

Insurable acres are determined by policy provisions

Uninsurable acres possess characteristics precluding grazing or hay production

Producer chooses the number of acres to be insured

All insurable acres do not have to be insured

Step 7: Select the Sample Year for Insurance Coverage

Used for historical analysis.

Range of sample years. RI = 1948 – 2012 VI = 1989 – 2012

Step 8: Enter Percent of Value to be Insured Per Index Interval

Select intervals to protect against production losses. Intervals are periods of consecutive

months. RI = 2 consecutive months. VI = 3 consecutive months.

Intervals cannot overlap. There may be a minimum/maximum

percentage insurable for a single interval.

The sum for all intervals must equal 100.

RI – PRF, an example

Drought of

2001?2002!

Drought of

2010?2011!2012!

Moisture needed to grow grass.

Actual Percent Policy Total Premium Producer Index

Year Interval of Value Protection Premium Subsidy Premium Value Indemnity Mar-Apr 50 $764.00 $108.00 $59.00 $49.00 79.8 $2Aug-Sep 50 $764.00 $90.00 $49.00 $41.00 63.5 $158Policy Total $1,528.00 $198.00 $108.00 $90.00 $160Mar-Apr 50 $764.00 $108.00 $59.00 $49.00 14.3 $627Aug-Sep 50 $764.00 $90.00 $49.00 $41.00 57.4 $216Policy Total $1,528.00 $198.00 $108.00 $90.00 $843Mar-Apr 50 $764.00 $108.00 $59.00 $49.00 162.6 $0Aug-Sep 50 $764.00 $90.00 $49.00 $41.00 96.6 $0Policy Total $1,528.00 $198.00 $108.00 $90.00 $0Mar-Apr 50 $764.00 $108.00 $59.00 $49.00 52.3 $265Aug-Sep 50 $764.00 $90.00 $49.00 $41.00 65.4 $139Policy Total $1,528.00 $198.00 $108.00 $90.00 $404Mar-Apr 50 $764.00 $108.00 $59.00 $49.00 56.4 $225Aug-Sep 50 $764.00 $90.00 $49.00 $41.00 50.9 $278Policy Total $1,528.00 $198.00 $108.00 $90.00 $503

2001

2002

2003

2011

2012

Comparison of Rainfall Index Values

Vegetation Index

Vegetation Index

Comparison of Vegetation Index Values

Actual Percent Policy Total Premium Producer Index

Year Interval of Value Protection Premium Subsidy Premium Value Indemnity

2001 May-Jul 100 $51,485.00 $4,952.00 $2,723.00 $2,229.00 96.9 $0

2002 May-Jul 100 $51,485.00 $4,952.00 $2,723.00 $2,229.00 38.9 $43,154

2003 May-Jul 100 $51,485.00 $4,952.00 $2,723.00 $2,229.00 93.6 $0

2011 May-Jul 100 $51,485.00 $4,952.00 $2,723.00 $2,229.00 128.3 $0

2012 May-Jul 100 $51,485.00 $4,952.00 $2,723.00 $2,229.00 27.9 $51,485

Cost Estimator – Quick Estimate

Finding Information about PRF

www.rma.usda.gov/policies/pasturerangeforage/

See a crop

insurance

agent.