How Drought Insurance Works
PASTURE, RANGELAND, FORAGE(PRF) HOW IT WORKS.
Forage and livestock producers in the United States can buy insurance to mitigate forage production risk. Pasture, rangeland, forage (PRF) insurance was developed by the U.S. Department of Agriculture (USDA) Risk Management Agency (RMA) and has been available in the United States since 2009. For the US, PRF insurance is based on a rainfall index and provides coverage when the precipitation in an area declines from its long-term, historical norm. The deadline for purchasing this insurance is typically in mid-November the year before the calendar year being covered. Do Not Wait! Call Us Today To Get On the List!
HOW IT INSURANCE WORKS
The rainfall index is based on data from the National Oceanic and Atmospheric Administration Climate Prediction Center that is specific to grid locations. Each grid area is 0.25 degrees in latitude by 0.25 degrees in longitude. The grids do not follow state, county or other geopolitical boundaries. The rainfall index is not based on individual farm or individual weather station precipitation data but rather is based on, or interpolated from, data from multiple weather stations. The historical index value, also called the expected grid index, is set to a 100 percent level; and an indemnity is paid when precipitation falls below an elected coverage level, the trigger grid index.
Different options are available to provide coverage for a farm. Premiums will vary by the selections made by the producer. Each option should be considered when purchasing PRF insurance.
When using PRF insurance, a producer must select coverage for either grazing or haying purposes. Although acreage under one policy may only be selected to be insured for one intended use, producers can have separate polices even on the same farm, such as 50 acres in one field for grazing and another field of 50 acres for haying. Each intended use has its own base county value. The RMA assigns each grid area a base dollar value per acre for grazing and a base dollar value per acre for haying, which reflect typical production values for that area. In Missouri in 2013, the county base level for grazing varied across the state from $39.21 to $43.17 per acre, and the county base level for haying was $142.15 per acre.
Coverage levels range from 70 to 90 percent. The coverage level establishes the rainfall deviation from the index when insurance pays an indemnity. The government subsidizes different coverage levels at different rates. The government will pay 51 percent of the total premium at the 90 percent coverage level, 55 percent for 80 and 85 percent coverage, and 59 percent for the 70 and 75 percent coverage levels.
The productivity factor allows producers to customize their PRF insurance policy based on their specific situation. Producers will select a productivity factor between 60 and 150 percent and will adjust the county base level per acre accordingly. This factor allows producers to adjust their forage value based on the specific productivity of their land. For example, if a farmer feels that a heavily fertilized hay crop needs more protection than the original county base level, then that farmer would select a productivity factor greater than 100 percent to increase the level of coverage.
Forage and livestock producers in Missouri can buy insurance to mitigate forage production risk. Pasture, rangeland, forage (PRF) insurance was developed by the U.S. Department of Agriculture (USDA) Risk Management Agency (RMA) and has been available in Missouri since 2009. For Missouri, PRF insurance is based on a rainfall index and provides coverage when the precipitation in an area declines from its long-term, historical norm. The deadline for purchasing this insurance is typically in mid-November the year before the calendar year being covered.