Business of Farming

BY ADAM N. RABINOWITZ, PH.D.

One of the biggest uncertainties that hay and forage producers face is weather and the ability to receive adequate moisture for the growth and maturity of pasture and forages. Of course, weather is completely out of human control, making it a very uncertain factor of production. There are options to help manage the risk that is associated with that uncertainty and to minimize the financial impact on agricultural production.

The United States Department of Agriculture (USDA) Risk Management Agency (RMA) administers an insurance program targeted toward producers of perennial forage for grazing and hay. The Rainfall Index (RI) Pasture, Rangeland and Forage (PRF) insurance program provides a heavily subsidized insurance product that has been available in Alabama since 2009. When rainfall is low, relative to historical averages, this insurance product will

pay indemnities on eligible policies to help producers cover replacement feed costs or lost revenue.

Acreage enrolled in PRF has steadily increased in Alabama, as shown in figure 1. The early years of the program saw less than 100,000 acres enrolled; however, this threshold has been surpassed every year since 2017. Most recently, almost 250,000 acres were enrolled for 2022. Even with the steep increases seen in enrolled acres, there is still plenty of uncovered pasture acreage in the state. According to the 2017 U.S. Census of Agriculture, there were almost 2.3 million acres of pastureland in Alabama, excluding woodland pastured. Thus, only about 10% of the total pastureland is enrolled in PRF, providing opportunities for producers to consider this risk management strategy.

PRF is based on a grid system throughout the country where rainfall is measured using the four closest weather stations to the selected grid. Unlike other USDA programs that use the drought monitor, the PRF insurance program determines covered losses based on a selected guarantee that ranges from 70-90% of the historical average precipitation from 1948. This is based on a selected two-consecutive-month coverage interval that is chosen by the producer. When the average rainfall index for the two-month period falls below the guarantee then a payment is triggered. The guarantee and coverage period are just two of the many different options that are offered to producers to customize the policy to what best suits their individual operation.

Producers also choose the number of acres to insure, with no set minimum and no requirement to insure all acres. The intended use needs to also be declared as either haying or grazing. A productivity factor is also chosen so that producers can cover more or less than the average productivity in the area. RMA has an online decision tool (https://prodwebnlb.rma.usda.gov/apps/prf) that allows one to view historical rainfall averages, choose options and estimate indemnities.

Premiums for purchasing PRF coverage are subsidized by the federal government. Subsidies range between 51% and 59% of the overall premium, depending on the coverage level chosen. Given this high level of support, the actual producer-paid premiums in Alabama have been less than indemnities paid on eligible policies in all but two of the last 11 years. Figure 2 shows the producer-paid premiums, i.e., after premium subsidies have been deducted, and the indemnities paid on all policies sold in Alabama from 2011 to 2022. The only two years when indemnities did not exceed premiums paid by producers was in 2013 and 2018, and that was on average by less than a dollar per acre. In eight of the other nine years, the average dollar per acre indemnity exceeded the average producer-paid premium by over $6 per acre (excluding 2016 when it was over $25 per acre).

Similar to other federal crop insurance programs, PRF can only be purchased through an approved insurance provider (AIP) and crop insurance agent. One can find an AIP and crop insurance agent at the RMA website: https://public.rma.usda. gov/AipListing/InsuranceProviders. In 2022, the USDA moved the deadline to enroll in PRF from Nov. 15 to Dec. 1. It is not known what the deadline will be for 2023 enrollment. Additional and updated information on the PRF program can also be found on the Alabama Cooperative Extension System (ACES) website at: https://www.aces.edu/blog/topics/ farming/forage-risk-management-subsidized-insurance-as-a-strategy/.