The USDA is currently piloting two Rangeland insurance programs in various states across the nation. The two programs are the PRF Rainfall Index Program and the PRF Vegetation Index Program. Knowing that a lack of precipitation and forage growing conditions many times correlates to a reduction in grazable or hayable forage production, the USDA is offering these programs which cover a decline in precipitation and forage growth.
Many ranchers have implemented various risk management techniques to help alleviate some of the effects of drought; however, the ranching industry historically has not been able to participate in heavily subsidized federal crop insurance programs. The following map depicts the USDA pilot areas.
While the program is new and in pilot, you can take advantage of the available government subsidies and implement a solid risk management tool to help offset the some of the effects of drought.
Rainfall Index Program
- Only covers a decline in area precipitation
- Rainfall recorded by NOAA
- Easy to understand
Vegetation Index Program
- Covers a decline in forage growth
- NDVI data recorded by EROS
- Easy to understand
- USDA pays over half of the premiums
- Ability to only insure periods of the year that matter to your production
- No insurance adjustments needed
- Premiums not due until next July
- Historical production records not needed
- Provides more coverage than FSA-NAP
- Coverage Levels = 90, 85, 80, 75, 70%
- Select county values (PF) = 60 – 150%
- Do not have to insure all acres
- No requirements on how you spend the payments – i.e. alternative feeds, moving livestock, destocking losses, new land leases, etc.
- Provides more coverage than NAP (NAP offered via FSA)
- You can have both: this program and NAP and receive benefits from both
- 2012 sign-up for both programs is September 30th
The graph above illustrates how this program would have performed for one of our clients north of Canadian, Texas in Lipscomb County. The example depicts a 2,500 acre ranch (90% CL and 150% PF). If the rancher had participated in the program for the past ten years ($0.88/ac premium), he would have received payments greater than paid premiums in 9 of the last 10 years!
While premium rates, prices, and histories WILL NOT be identical for all areas, it is important that this example is based on an actual ranch and histories in this area.
It is important to remember that actual results each year vary. But on average for this specific operation, the program would have paid about $2.00 for every $1.00 in producer paid premium (varies with different coverage levels and assuming 60+ years of participation). This ratio exists as a result of the government subsidy paid on premiums.
Broken Arrow Crop Insurance can run similar scenarios for your ranching operation. These scenarios will increase your knowledge of the program and how it relates to your operation; thereby, maximizing the effectiveness of the risk management tool for your ranch.