Extension Education: Forage Insurance – Look into it!
Although the growing season of 2013 was much better than 2012, drought will come again. I want to discuss a tool that you should consider. If I mention the word “insurance” I know many of you will tune out and assume this doesn’t apply to your operation. Let me just assure you that it would be worth your time to look into this.
Not everyone will decide to purchase this, but it will likely surprise you as you learn the details. The cutoff date for purchasing Pasture Range and Forage (PRF) Insurance is around early November, so if you’re interested in it now is the time to see your local crop insurance sales person.
Pasture, range and forage insurance (PRF) is a product of the Risk Management Agency (RMA). The idea is to provide ranchers some protection against drought risk.
The product now available is the vegetative index method. This is completely different than the product that created a controversy several years ago that was based on dryland hay production.
However, the vegetative index product is not perfect either. It is difficult to measure forage production accurately across broad landscapes. Vegetative index uses satellite imagery to measure the greenness of the landscape. It is assumed that more greenness equates to more growth and vice versa.
The really neat thing about this product is that before you decide to purchase it, you can use the online decision support tool and research how it would have paid during the past decade or longer. The website with information on the product and this decision support tool can be found at 1.usa.gov/MTvpfI. Make sure you look under the vegetative index product.
Working for you
There are two questions that you can answer when using this decision support tool. First, did the insurance pay during our worst years? Also, what was the overall indemnity collected compared to our premium outlay?
Let’s look at an example ranch and see how the product worked.
I randomly picked a site 10 miles north of Douglas on Highway 59. If we insured 10,000 acres each year at the maximum levels, the insurance would cost about $5,550 per year. Fifty cents per acre is a good estimate of what it may cost if you live in an area of similar forage production to this example site. If we purchased the insurance every year from 2002 to 2012, we would have paid a total premium of $60,500 for all 11 years.
Using the online tool we can see that that product would have paid an indemnity in 2002, 2004 and 2012. The total indemnities we would have received would be about $119,000 over the 11 years.
If you are looking at these numbers for your ranch, the first question I would ask you is to consider if the insurance is generally paying out during the dry years. If so, then the insurance is working pretty well as drought insurance.
You can see from the numbers that even after paying all the premiums the product paid out $59,000 more than it cost to have it. Generally we don’t expect insurance to be a paying proposition, but rather hope that it will provide some financial stability during the bad years. However for every operation I have examined over this past 10-year period, it is always a paying proposition to carry this insurance.
Tool in the toolbox
I would encourage you to consider adding this tool into your toolbox of drought contingency plans.
PRF insurance by itself does not constitute a drought plan, but may be one part of it. Your local crop insurance agent should be able to sell you this product, but you need to purchase the product before mid-October.
If you would like to look at your ranch specifically like I did for the above example ranch, please call me at 307-322-3667.
Here’s hoping you have a nice wet fall.