PRF insurance: UNL specialist shares drought risk management strategies
The University of Nebraska-Lincoln (UNL) BeefWatch podcast welcomed UNL Farm and Ranch Management Specialist Dr. Jay Parsons to discuss Pasture Rangeland Forage (PRF) insurance on Nov. 3. PRF insurance can be utilized to minimize losses due to drought.
Parsons notes it’s important to strategically develop a PRF insurance plan.
“I always encourage producers to think strategically about this because it’s not something producers want to bounce in and out of purchasing from one year to the next, and it is not something they want to change the strategies of where the coverage is and how much coverage is put on one year to the next,” he says.
PRF insurance overview
PRF insurance is a rainfall index product, says Parsons.
“It’s based off of rainfall in what is called a grid, and in Nebraska, those grids are about 12 miles east to west by 16 miles north to south, roughly speaking,” he says. “It is an index built up over a number of years. Going back all the way to 1948, they have rainfall numbers recorded for these various grids.”
Parsons recommends producers understand the grids their pastures are located in and reminds producers their land may be in more than one grid at a time.
“It is pretty easy to have a single pasture in more than one grid, let alone have several pastures spread across several grids,” he says.
Coverage is sold in two-month intervals, and it’s sold on a calendar year basis. Dec. 1 is the signup deadline for the 2023 calendar year. Producers select various two-month intervals throughout the year to insure rainfall on.
Parsons says producers can insure up to 90 percent of normal rainfall by buying PRF insurance from their crop insurance agent.
“Producers can insure up to 90 percent of normal or as low as 70 percent, and if the actual rainfall index comes back below the insured level, then that’s when producers would get an indemnity payment to partially compensate for a lower forage production, presumably tied to the lower precipitation,” he says.
Data from weather stations provided by the National Oceanic and Atmospheric Administration are used to measure precipitation levels, says Parsons. The weather station data is used to predict rainfall for each particular grid area.
Parsons notes what producers experience on their land and pastures may not always reflect what the index reports for their grid area.
“There’s not a lot we can do about this because they’re pulling it in from the various weather stations and making a guestimate on how much rainfall fell in a fairly wide area, and producers may have experienced something quite a bit different on their operation,” he says.
Producers commonly report receiving plenty of rain but still receiving payments because the index was low. Producers also report having an extremely dry year, but the index was high so they don’t receive a payment.
“The insurance is not meant to trick producers or take advantage of producers in any way,” says Parsons. “It is basically pulling information from weather stations to build an index over time and, if producers stick with it, the premium they are being charged will be fairly consistent with what they’re actually experiencing overall, but any one year can be a bit frustrating every once in a while.”
When determining premium costs for the insurance, the probability of paying out an indemnity for a two-month interval is taken into consideration, says Parsons. The subsidy, a sum of money granted by the government, will cover a bit over half of the full premium cost, Parsons says.
“If a producer is at 90 percent coverage, the subsidy is at 51 percent, roughly a 50-50 split between the producer and the government on the actual premium charge,” he says. “If producers go down to the 70 or 75 percent coverage level, the subsidy goes up to 59 percent, so some people prefer to insure at the lower levels to save money on the premium charge in general because the probability of being below 70 or 75 percent is obviously lower than it is to be below 90 percent.”
“There’re different strategies played out on what months to put the coverage in, and then of course what level to insure at,” adds Parsons.
He recommends purchasing insurance annually for several years, because in a long-term plan, producers will likely have greater indemnity than the cost of the premium.
Developing a strategy
Before sitting down with a crop insurance agent to purchase PRF insurance, Parsons advises producers to develop a strategic plan for their operation.
“This is a strategic tool,” says Parsons. “It gets a lot of attention now because we have a lot of drought going on, but who knows what next year is going to look like or 2024 and beyond, so come up with a strategy, make it part of your plan and stick with it.”
Kaitlyn Root is an editor for the Wyoming Livestock Roundup. Send comments on this article to email@example.com.