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Pasture and Rangeland Insurance

Pasture and Rangeland Insurance
Pasture, Rangeland, Forage Rainfall Insurance Due Nov. 15
SD Ag Connection - October 23, 2017

UNDATED - November 15 is the deadline to apply for 2018 Pasture, Rangeland and Forage insurance coverage. Before signing up, Matthew Diersen, Professor & SDSU Extension Risk/Business Management Specialist explains several aspects of the insurance which South Dakota livestock producers should consider.

"The insurance relies on a relationship between rainfall timing and forage production amounts," Diersen explained. "Producers insure against low precipitation during specific intervals for localized grids that ideally match their haying or grazing needs."

In South Dakota, the coverage is based on a Rainfall Index with indemnity payments tied to a lack of rainfall in a given area. Rainfall is grid-level and not farm- or ranch-level when measured against data made available since 1948.

"There is usually not a grazing history for individual farms, but county hay yields can be used as a proxy to measure the desired correlation," Diersen said.

Sporadic rainfall early in 2017 focused attention on insurance for pasture and forages for livestock feed. And, although the premiums to purchase Pasture, Rangeland and Forage insurance are subsidized similar to other crops, participation or use remains low.

In 2017, more than 75 million acres were insured with Pasture, Rangeland and Forage insurance nationwide. In South Dakota, despite a record 3.1 million acres insured, the percent of permanent pasture and rangeland covered is still less than 14 percent of the 22.5 million acres eligible, based on the 2012 Census of Agriculture.

"The use by county shows wide variation and no obvious pattern in where producers are using Pasture, Rangeland and Forage insurance coverage (Figure 1)," Diersen said.

The highest percent of acres covered, 67 percent, was in McCook County compared to no acres insured in Hamlin County.

"There can be wide variation between neighboring counties," Diersen said.

For example, 28 percent of acres in Harding County were insured, while only 7 percent of acres in Perkins County were insured.

"When aggregated, the benefits to the insured look quite clear," Diersen said.

For example, as of early October, 2017, South Dakota producers paid $10.8 million in premiums and received $17.1 million in indemnity payments.

"However, that masks the performance for individual locations," said Diersen.

He explained that while some producers have been surprised by large payments, others have been disappointed by small payments.

Because the insurance relies on a relationship between rainfall timing and forage production amounts, producers have to allocate or weight acres across intervals.

For specific intervals in a given grid, the correlation may be very low between rainfall and yields. Other grids may have a stronger correlation, suggesting better performance of the insurance.

"There is not a lot of yield data to make robust judgments about performance," Diersen said. "But back-testing suggests some weighting methods may improve the effectiveness of the coverage."

Higher weights may be used for intervals that are correlated with low yields. Using weights in multiple intervals often, though not always, improves the correlation compared to using single intervals.

"Using a high weight for a given interval may forgo subtle relationships among intervals," he said.

Starting in 2018, the South Dakota non-irrigated haying base rate varies by district, ranging from $125 to $271 per acre.

The grazing base rates can change from year to year and for 2018 range from $16.20 to $35 per acre.

"Producers have to pick a productivity level from 60 percent to 150 percent of the county base," Diersen said. "They may consider a higher level if their replacement feed cost is high or a lower level if they have low yields in district."

He added that producers may also elect a low productivity level if their yields have been poorly correlated with rainfall in their grid, thus reducing premium costs for less-effective coverage.

Producers have to pick a coverage level from 70 to 90 percent of their grid base price level. Most 2017 acres in South Dakota were covered at the 90 percent level despite its lower subsidy rate. Some acres were covered at the 85 percent level. The tendency for high coverage levels increases the frequency of indemnity payments, but at premium costs.

For more information, interested insurable parties can contact a crop insurance agent or go on-line to the Risk Management Agency's Pasture, Rangeland and Forage insurance page. In addition, readers can visit iGrow and look up the Pasture, Rangeland and Forage insurance factsheet "Pasture, Rangeland, Forage (PRF) Rainfall Index Insurance, also available at igrow.org/up/resources/07-2003-2012.pdf.



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