Webinar: Insurance Tools for Managing Forage Production Risk (July 2, 2020)

Department of Agricultural Economics Author

07/10/2020 Added

29 Plays

Description

With Jay Parsons, professor and extension farm and ranch management specialist, UNL Agricultural Economics. Forage production can vary greatly from one season to the next depending upon weather. In the last 15 years, several new insurance tools have become available to Nebraska producers to help manage this risk. This presentation will provide an overview of all that is available and provide examples of how they can be used to mitigate weather risk. With a signup deadline of July 15, information specific to the new Annual Forage Insurance Plan will be emphasized.

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[00:00:20.040]Brad Lubben: Good. Good afternoon. Welcome. Thank you for joining our webinar this afternoon, as we have folks here just beginning to be added into the webinar, we'll wait a minute, let them get in. Before we formally start
[00:00:59.520]Brad Lubben: Alright, good afternoon. Again, I think we will begin here for me this afternoon.
[00:01:04.230]Brad Lubben: My name is Brad Lubin I'm an extension, associate professor and policy specialist here in the Department of Agriculture economics, on behalf of the Department. Welcome to our webinar today.
[00:01:14.250]Brad Lubben: This is a continuing part of a series of webinars that our farm and ranch management team has been preparing and delivering since April.
[00:01:22.560]Brad Lubben: Every Thursday at noon, we've been able to deliver these continuing webinars. You can find recordings of these sessions. You can find a schedule of upcoming webinars. You can find other resources, all at our website farm W and l.edu
[00:01:39.840]Brad Lubben: One of the resources that we do want to highlight again every week. In addition to our focus topic is the work of the Nebraska rural response hotline.
[00:01:48.690]Brad Lubben: At in times of stress, knowing when to reach out is essential, the rest of our response hotline can provide mental health counseling.
[00:01:56.580]Brad Lubben: Information regarding legal assistance financial clinics mediation and more outlines toll free number is shown on the screen 1-800-464-0258
[00:02:09.150]Brad Lubben: In addition, a row, a wealth of resources related to stress and wellness can be found at rural wellness dot you and now.edu
[00:02:17.280]Brad Lubben: Now during today's presentation, you won't be able to interact directly with our speaker, but you can ask questions by going down to the bottom of your
[00:02:26.460]Brad Lubben: Webinar window and clicking on the chat box or the Q AMP a box. Either one will allow you to ask a question. I'll be moderating today and monitoring those questions for our presenter.
[00:02:38.820]Brad Lubben: But we look forward to taking questions as you go and Jay will have a chance to respond to them here as we wrap up.
[00:02:46.860]Brad Lubben: Now onto today's topic for each production can vary greatly from one season to the next depending upon whether
[00:02:53.640]Brad Lubben: In the last 15 years. However, several new insurance tools have become available Nebraska producers that can help them manage this risk.
[00:03:02.130]Brad Lubben: This presentation will focus on many of these tools, particularly the annual for each insurance plan, one of the new tools that has an upcoming deadline here. Very, very soon.
[00:03:13.800]Brad Lubben: Jay will talk about this and pride examples of how they those tools can be used to manage manage and mitigate the risk
[00:03:20.310]Brad Lubben: So as I said, presenting. All of this is Jay Jay is a colleague of mine J Parsons is a Associate Professor extension farm and ranch management specialist in the Department of Ag economics.
[00:03:32.130]Brad Lubben: If I remember right correctly J European handle native but a Colorado State alum and came back to are keen to Lincoln here. Now, a decade ago or so. And I've been working here. Anyone else. Yes. So welcome to the program. Jay, and we look forward to your presentation.
[00:03:51.270]Jay Parsons: Thank you, Brad. I'll go ahead and share my screen here.
[00:03:55.980]Well, I'm talking
[00:04:01.710]Jay Parsons: Let me know when that comes up.
[00:04:05.730]Brad Lubben: So, the screen is up, but go ahead and go into presentation mode.
[00:04:09.480]Jay Parsons: Okay, it didn't. Usually I get a signal on my end.
[00:04:12.240]Jay Parsons: All right. Thank you.
[00:04:13.140]Brad Lubben: Now we're in presentation mode, it looks fine. Okay.
[00:04:17.070]Jay Parsons: All right. Thank you, Brad. And of course, the topic that he introduced
[00:04:20.910]Jay Parsons: Quite well this is something that I got some knowledge of back when I was at Colorado because Colorado had the distinction on the rainfall insurance.
[00:04:31.380]Jay Parsons: Which we have here for pastor range land and forage. It's just one of the topics that I'll mention here today, we in Colorado actually had the
[00:04:40.020]Jay Parsons: Vegetation Index and the rainfall index there at the same time. So I had to get up to speed, fairly quickly on those so
[00:04:47.970]Jay Parsons: It is a tool these different tools that have become available since that came out a little over a decade ago.
[00:04:54.540]Jay Parsons: Or things that we're constantly letting producers know about. And we'd like to thank the North Central extension risk management education center for
[00:05:02.910]Jay Parsons: Funding that allows us to do that. Get around the state and present webinars like this online and in person programs in the non coven environment, which we hope to
[00:05:14.550]Jay Parsons: Go into here in the very near future, but let's go ahead and launch into some of the stuff on on insurance tools that are available for
[00:05:21.900]Jay Parsons: Managing forage production risk and let me start by clarifying a couple of things. One of them is I'm going to focus primarily in the crop insurance world, which is the tools that are available from RMA and their website is are made usda.gov
[00:05:36.450]Jay Parsons: So the numbers. I'll be presenting today in regards to that you they're available to the public. I don't have any special permission to get to these so you can go online to this website and actually access this information.
[00:05:50.310]Jay Parsons: On your own for your own area in your own interest in terms of the coverage.
[00:05:54.930]Jay Parsons: There are some programs that are applicable that are from the Farm Service Agency and those fall under our disaster program assistance.
[00:06:03.060]Jay Parsons: One, you may be familiar with is called nap. The non-insured crop disaster assistance program that's available for crops were regular crop insurance is not available to you. There's been some changes with that with the
[00:06:16.770]Jay Parsons: Latest farm bill the 2018 farm bill that makes that operate more like a insurance program than it did in the past.
[00:06:24.090]Jay Parsons: But I won't have too much time today to do anything other than just mentioned a little bit about that at the tail end
[00:06:30.000]Jay Parsons: Livestock forage disaster program is another program in the disaster assistance program of FSA, and it is pertinent in terms of range.
[00:06:40.530]Jay Parsons: Conditions and range production, but it is a part of the disaster program that's an after the fact.
[00:06:46.890]Jay Parsons: type of program that you sign up for after the drought is happened so I'll mention that, too. But I don't want to get those confused with the RMA insurance products, which is where we're going to spend a majority of our time today.
[00:07:00.810]Jay Parsons: If you go on that army website, they are becoming increasingly transparent in what's available and how how these different products are working. There's a state profile up there for every state.
[00:07:12.180]Jay Parsons: This is just a part of the Nebraska state profile that I grabbed online.
[00:07:17.220]Jay Parsons: And, you know, one of the things that you'll notice when you look at a state profile is just how much people are using the crop insurance for the different crops so
[00:07:25.350]Jay Parsons: Our primary crops like corn and soybean, wheat are all over, over 90% of the acres of those crops are insured through IRA insurance products.
[00:07:36.030]Jay Parsons: Some of these other crops, not so much. And we're going to focus on the forage crops here today. But for example, you look at things like oats in Rye.
[00:07:45.630]Jay Parsons: Both of those are less than 10% of the acres are insured in the state and a lot of the times, that's because those are being used as a
[00:07:54.420]Jay Parsons: As a forage source, rather than a grain source. So, the less than 10% number pertains to those being harvested as a grain source if they go into the forage category, they would fall
[00:08:05.310]Jay Parsons: Under the annual forage insurance which we're going to spend some time on here today. And a lot of people aren't really familiar with that option available to them.
[00:08:15.240]Jay Parsons: So these are the four insurance products we're going to look at it in a little bit of detail.
[00:08:20.220]Jay Parsons: Annual forage will be the main primary one that will look at, it's only been available since 2014 very light use in the state. This number 3168 is the number of insured acres so far in the
[00:08:33.840]Jay Parsons: crop year for that product is will discover here in a moment the crop the planting period for that for the 2020 crop. You're actually started in the middle of 2019 and doesn't end until July 15 of
[00:08:46.920]Jay Parsons: In here in a couple of weeks. So those numbers could go up a little bit, but it's pretty much
[00:08:52.950]Jay Parsons: Not where it's at. This is a little higher in last year already so when suspected go up very much. It is available in whole county and about $600,000 worth of liability in place.
[00:09:04.410]Jay Parsons: So far, again, we got about two more weeks that people could be planting and reporting acreage on that product for now this is annual forage. Forage production is for perennial for each
[00:09:17.790]Jay Parsons: So your alfalfa, alfalfa grass mixes again for 2020 about 2800 acres. So, so pretty much equivalent in terms of what has been insured for the 2020 production year
[00:09:31.290]Jay Parsons: Only nine counties in the state, however, have this available. And that's probably easiest to look at just looking at a map.
[00:09:38.760]Jay Parsons: So there's five counties up in the Northeast sector four of them bordering right up on the border with South Dakota and then whole county
[00:09:47.370]Jay Parsons: And then we have four counties down here in the center Custer being the biggest one, and then Valley Sherman and Howard. Those are the only nine counties where
[00:09:57.150]Jay Parsons: Perennial forage production is insurable at present in Nebraska all these green County's out here, of course, our neighbors and you'll can't help but notice that you can
[00:10:07.080]Jay Parsons: walk outside of Omaha and basically walk the border of Nebraska all the way around the North side and get down here, just south of the say dicks.
[00:10:15.480]Jay Parsons: Nebraska down here in the lower panhandle and you're in count all counties of that can be insured with for forge production. So not a lot in the state, but certainly a lot in our neighboring states.
[00:10:26.400]Jay Parsons: That are available for that currently about 350,000 in place for the 2020 production year again, these are the things that are put put in place last fall to cover the 2020 production year forage seating is for newly planted perennial for ages.
[00:10:44.580]Jay Parsons: So again, you're alfalfa, alfalfa grass mixes lots of stars on this one because this is still in place for 2020 and there's changes for the upcoming 2021 year
[00:10:56.700]Jay Parsons: Because we don't have all the acres reported the data I put here is actually for 2019 so in 20 in the calendar year we had about 1300 acres of forage seeding coverage in the state. And that was about 180 $1,000 worth of liability coverage.
[00:11:17.310]Jay Parsons: At that time, it was like the forage production really only nine counties that you could
[00:11:23.220]Jay Parsons: Put in play a very small number of counties here. I can't remember was eight or nine but that's been expanded for 2021
[00:11:30.240]Jay Parsons: To where it's now up to 39 County. So we're used to be, you know, same characters we had for forage production. Now it's expanded all the way out.
[00:11:39.360]Jay Parsons: To cherry county all the counties in the Panhandle Lincoln County with North Platte down that I 80 corridor and then
[00:11:46.800]Jay Parsons: fully expanded into the Northeast sector. So we're going to have a lot more coverage for for each seeding and you'll be interested to see some of those numbers.
[00:11:56.460]Jay Parsons: That pop up and how that's been performing in the state here later on in the talk but I suspect that will have a lot more acres coverage for forage seeding
[00:12:04.980]Jay Parsons: In the near future pastor range Lana forage is for perennial pasture land.
[00:12:10.530]Jay Parsons: These numbers are pretty steady and again that's for the calendar year. So for 2020 we have about 2.2 million acres
[00:12:18.570]Jay Parsons: By far, is the one that's covering the most acres petitions you're printing a pasture and about $52 million worth of liability coverage in place. This 52 million is down about 10 million from last year.
[00:12:31.710]Jay Parsons: But last year's was usually we've been seeing numbers between 45 million for this. And then last year jumped up over 60 now it's back down to 52
[00:12:41.550]Jay Parsons: That the most of that has to do with the dollar value being attached to the coverage. We've been hovering right around that 2 million acre coverage number for quite some time.
[00:12:53.490]Jay Parsons: So let's get into a little bit of detail here with the PR or the annual forage coverage. It is not available in the entire country.
[00:13:02.550]Jay Parsons: It is basically just here in the midsection initially when it started in 2014 and basically went from North Dakota down to Texas in
[00:13:12.450]Jay Parsons: 2016 the state of Colorado was added and then New Mexico was added. A year later, so it's not available widespread, it's not available to our neighbors to the east or the west.
[00:13:24.450]Jay Parsons: But it is available through the midsection is enhanced been available in Nebraska since 2014 if you're familiar with pastor range land and forage insurance annual forage works very similar in the
[00:13:38.820]Jay Parsons: Manner. That is, is basically indemnified and the coverage that you put in place. It is a rainfall index. Okay, that is based off of a grid. So it's not based off of your actual production.
[00:13:52.140]Jay Parsons: So you have a historical grid in which the your
[00:13:56.010]Jay Parsons: Fields will lie that you plan to plan annual for a Jan and that will determine the coverage put in place. And the way it's indemnified
[00:14:05.400]Jay Parsons: So these grids are basically point two five degrees latitude by point two five degrees longitude, so roughly
[00:14:13.620]Jay Parsons: They're supposed to be 17 miles by 17 miles at the equator here in Nebraska. You're looking more about like a 12 by 17
[00:14:20.370]Jay Parsons: About 12 miles wide and 17 Miles tall in terms of how those grids play out. But they don't respect COUNTY LINES or anything like that. It's just based off of longitude and latitude.
[00:14:32.640]Jay Parsons: So there's data going back to 1948 for each grid based off a weather station data and that determines what they call the average
[00:14:43.350]Jay Parsons: Expected value which is one and then you ensure a percentage of that in a given year.
[00:14:51.030]Jay Parsons: Okay, so say you insured 75% of the expected grid index, which would be that long term average
[00:14:57.780]Jay Parsons: Rainfall if the rainfall fell below 75% of average, then you would pick up the difference between where it actually was. And when the level of coverage that you had in place you choose the coverage level.
[00:15:11.310]Jay Parsons: You can max us out as high as 90% and go as low as 70% and then that, of course, the lower you go the cheaper. The coverages and the higher you go, the more expensive it is, but the dollar value that you actually put on per acre for these annual for ages that you plant.
[00:15:31.740]Jay Parsons: They if you fall below that then then you basically get that percentage that you are below. So if you ended up with an actual rainfall index at 60% then you're you're 15% below your coverage level. She they take 15% times whatever you had is dollar value coverage in place.
[00:15:51.900]Jay Parsons: Okay, so that's the gist of it. We'll walk through some details of it now and I'll show you an example. And hopefully, if you have any questions, feel free to type them in. And we'll address them at the end.
[00:16:03.810]Jay Parsons: But this is fairly new just came in in 2014 and it's to provide coverage for annual crops.
[00:16:09.660]Jay Parsons: That are planted for uses livestock feed or fodder. Okay, so you can be grazing it you can be hating it you can be doing a combination of that. You can also be
[00:16:20.670]Jay Parsons: Grazing it and planning to harvest it is green. And we're going to talk about that here in a moment to
[00:16:26.580]Jay Parsons: But as long as you're planning on using it for feed and it's an annual crop it would fall into this category of annual forage insurance being available for it.
[00:16:36.300]Jay Parsons: As Brad mentioned, we've got a signup deadline coming up. It's July 15. This is for everybody, no matter what county, you're in or what state you're in, for that matter.
[00:16:46.590]Jay Parsons: But you sign up for coverage for anything you plan to plant as an annual forage crop between July 16 of this year and July 15 of 2021
[00:17:00.090]Jay Parsons: Okay, so you got to plan ahead. If you're not planning to plant something till the spring, but you might want to insurance.
[00:17:06.090]Jay Parsons: Put insurance on it. You need to go in and make your insurance decision with your crop insurance agent before July 15 to get that in place.
[00:17:14.430]Jay Parsons: You don't actually have to pay for a premium on it until you report acreage so plans change the end up not reporting acreage of course your reported zero and wouldn't. Oh, the premium on it.
[00:17:26.550]Jay Parsons: But if you're planning on wanting to get the insurance plan in place, you need to make your decisions between now and July 15 in terms of which months you want the rainfall covered and what level you want to cover that and what dollar value. You want to put on per acre.
[00:17:40.260]Jay Parsons: There is a cat coverage for annual 4G insurance. I don't recommend that it's not available for gracing. First of all, but
[00:17:50.040]Jay Parsons: So you have to be planning to actually harvest it. The other thing about the cat coverage is is all explained here when I show you the example.
[00:17:58.020]Jay Parsons: It's very hard to get that to pay back. Matter of fact, if I go back to the history. I
[00:18:04.830]Jay Parsons: Think there's been one cat coverage policy that paid a little bit back in the State of Nebraska. It is hard to find anybody that's gotten anything back out of that.
[00:18:13.710]Jay Parsons: It is cheap, but it really doesn't cover much so I don't necessarily recommend that you go that route, unless you have a whole bunch of bakers that you want to cover and you don't want to pay a lot for it, but you're worried about a severe drought over extended period of time.
[00:18:28.440]Jay Parsons: Similar PRF annual four h is a two month rainfall index. And as I mentioned, and go up to 90% of normal precipitation coverage.
[00:18:39.270]Jay Parsons: Now this is the most complicated piece about it in terms of the growing seasons, it's split into quarters and as I mentioned the they start July 16 of one year.
[00:18:51.960]Jay Parsons: And go until July 15 of the following year. So each of these growing season is determined by the planting date and they're each three months long
[00:19:01.800]Jay Parsons: So we're about to enter into growing season one. And so by July 15. If you are planning on planting an annual forge between July 16 and on October 15
[00:19:12.780]Jay Parsons: You need to go in and get the coverage in place in terms of the precipitation months that the months you want covered the level of precipitation and the dollar value per acre.
[00:19:22.440]Jay Parsons: You have this amount of time, of course, to plant those acres and then go in and report which you actually planted and and and at that point, you'd know your premium and and you'd actually have, you know, some some coverage in place, but
[00:19:36.330]Jay Parsons: You need to plan ahead on these the precipitation piece of it them and cover September one through March 31 for this first planting season growing season, as they call it.
[00:19:46.980]Jay Parsons: And so, so that's the way it works. All the way through the year. So once you're outside of October 15 growing season two would kick in.
[00:19:55.050]Jay Parsons: And you put coverage in there for anything you plan to plant between mid October and mid January, and you could cover precipitation from December one to June 30
[00:20:04.470]Jay Parsons: And then growing season three, the January to mid April precipitation from March to September and growing season four would go from April to July 15 with with precipitation coverage from June to November.
[00:20:18.990]Jay Parsons: So, you know, so that's where we get into the situation where we still have a couple of weeks left in the previous years policy year for people to report that they planted some acres and of course the precipitation piece of that hasn't really been determined at all at this point.
[00:20:36.900]Jay Parsons: So that's a big take home message is, is if you are planning to do something in the spring and you're interested in this insurance, you need to get on on it.
[00:20:47.370]Jay Parsons: You know, within the next week or two to get that in place, certainly if you're if it's on your mind here for this upcoming planning period, you definitely want to get in there but keep keep
[00:20:57.240]Jay Parsons: Keep the entire year in mind as you look look through this time. Now while I have these dates up here, one of the common questions I get from people is, why would I want to ensure March.
[00:21:08.340]Jay Parsons: If I'm planting something in this period right here. So say I was planning on planting something in August or September, and I was going to graze it off or harvest it before winter hit
[00:21:21.480]Jay Parsons: Well, one of the reasons that people shy away from planting annual forage is as you move west in the state in particular is precipitation and soil moisture
[00:21:31.920]Jay Parsons: So let's say for example that you're out in western Nebraska or or in the middle of the state where that might be an issue.
[00:21:39.570]Jay Parsons: And you are going to plant a crop here and say, August or September, let's just say August and you're planning on actually using it as forage before
[00:21:49.740]Jay Parsons: Winter hits. So obviously you are interested in having precipitation to make that grow. So you can actually use it. So make sense to ensure September in October.
[00:22:00.960]Jay Parsons: But at the same token, you may be concerned about it using up some of your soil moisture and affecting your subsequent crop. Now, if you have good
[00:22:09.630]Jay Parsons: Precipitation in February, March through the winter months that problem goes away. If you don't. Maybe it's exacerbate exacerbated
[00:22:17.850]Jay Parsons: So that's one of the reasons you need to pay attention to this full period here and think about how that soil moisture might affect your other crop. If this annual forage that you're actually planting.
[00:22:28.830]Jay Parsons: This is a second crop in between in a fallow period in between two main crops. So a lot to think about here and a lot in terms of things that you can do with it.
[00:22:41.100]Jay Parsons: I mentioned grazing and harvesting it. This is a new
[00:22:46.050]Jay Parsons: Piece that was just put in place we're just finishing up the first crop year that it has been in place.
[00:22:51.750]Jay Parsons: And it's not available in the Dakotas. But basically, Nebraska, all the way south and as predominantly put in place for the
[00:22:59.880]Jay Parsons: People in Oklahoma and Texas who would plant winter wheat and and then actually in the fall, or in the grape growing season one category neighborhood graze it
[00:23:10.440]Jay Parsons: And then basically pull the cattle off and want to harvest it is green. So this is called dual use, in which case you can not only understand, you can go ahead and ensure it under annual forage.
[00:23:22.290]Jay Parsons: No matter what, okay. But you can't then subsequently normally be able to before this was put in place you in a bit able to go ahead and get a policy on the grain side of it, you do one or the other.
[00:23:34.110]Jay Parsons: The dual use came into place just recently for those wheat producers that want a grazer wheat and they can ensure up to 40% of what is its grazing value and still fully insured as a small grain as part of a grain harvest policy.
[00:23:51.150]Jay Parsons: So, so that just came into place and for the week growing areas at the State of Nebraska. It might be something that they want to consider or
[00:24:01.800]Jay Parsons: Didn't Know About beforehand, but it is there is available for folks to take advantage of.
[00:24:08.430]Jay Parsons: Okay, quick example on this and then I'll get to the other products this is I'm going to use the grid up by our experiment station up and by concord Nebraska.
[00:24:19.020]Jay Parsons: So if you go online it. This is what their online tool. Looks like you can just type in your address. You can zoom into your actual pasture and put a pin on it.
[00:24:26.520]Jay Parsons: The red lines are the boundaries for that grid. Okay, so we're just barely in this grid.
[00:24:32.400]Jay Parsons: If we go too far to the West would be out of it, but it's grid to 683 up in Dickson County. So that's where I'm pulling these numbers from
[00:24:40.650]Jay Parsons: The annual forage insurance plan in that county has a county based value of $222 an acre. So that's the what they determined to be the productive value of annual forage on a per acre basis producers can adjust this between 60 and 150%
[00:24:58.320]Jay Parsons: So they can bump that up to one and a half times your about $333 if they wanted to put that much coverage on it or lower down to 60% of that. So about $130 worth of coverage if they want to go that low
[00:25:11.040]Jay Parsons: And then they put coverage in the two month intervals. So let me show an example. This is the online tool that is available in army website.
[00:25:19.350]Jay Parsons: This is what you'd sit down and work with your crop insurance agent out of figure out where you want to put your coverage. I'm going to blow this up and in pieces.
[00:25:28.170]Jay Parsons: This is where you determine this growing season and so on. This is where you actually determine the months that you want to cover it in
[00:25:35.190]Jay Parsons: And we'll take a look at each of these in a little more detail. So let's blow up the protection information first
[00:25:41.070]Jay Parsons: Growing season one is our coverage. So this would be fall coverage planting season starting July 16 90%. This is the level of the rainfall that we wish to ensure
[00:25:51.720]Jay Parsons: And 100% productivity that factor. So we're going to go with the county average in terms of the dollar value per acre. I put in 100 acres just so it's easy for us to do the math.
[00:26:02.520]Jay Parsons: But this 90% and 100 then determines the county base value is 222 we're taking all of that at 100% and we're getting 90% rainfall coverage. So we're going to get about $200 worth of protection per acre here. Okay. Our subsidy level at that 90% coverage is 51%
[00:26:28.140]Jay Parsons: So the piece where you put the coverage in place. You can put no more than 45% in any one period. So you have to spread it out to some degree.
[00:26:36.120]Jay Parsons: I and you can ensure the same month twice. So if I put coverage in September, October I can ensure, October, November, because I'd be overlapping October.
[00:26:44.490]Jay Parsons: So these days. Come up to let you know that you can't overlap months. So for this example, I put 40% in September, October 30% in November, December and 30% in January, February.
[00:26:57.600]Jay Parsons: So I had about 220 thousand dollars worth of coverage and it just split it out into eight six and $6,000 in each of those periods.
[00:27:06.540]Jay Parsons: The premium rates is basically the percentage that they charge that's what they expect in the long run to pay back on this.
[00:27:14.670]Jay Parsons: So it's our actually fair calculation of their expectation to have to pay back and that arrives at the total premium and the total premium for this one totals out about $43 an acre.
[00:27:28.800]Jay Parsons: The government will pay 51% of that. So that's $22 an acre and the producers left with a premium of $21 an acre.
[00:27:41.100]Jay Parsons: When the year plays out. And this is how this actually played out for that grid for this would have been last September of 2019
[00:27:51.900]Jay Parsons: Running through. Actually, I take that back. This was, yeah.
[00:27:57.960]Jay Parsons: For whatever reason, they haven't reported the February, March, or these last periods here yet. So I went ahead and went back one year for this particular example.
[00:28:07.290]Jay Parsons: But the gist of it is, is if your index falls below your coverage level and I put in 90% coverage level for this example.
[00:28:14.700]Jay Parsons: All the other periods were well above normal so they wouldn't have paid, but there's one period, January, February, was at 73% of normal
[00:28:23.190]Jay Parsons: So that 16 and a half percent that I'm below normal it's multiplied by the $6,000 worth of coverage and it gives me an indemnity of 1100 dollars.
[00:28:32.550]Jay Parsons: So I paid $21 an acre. And in this particular example, my indemnity was $11 an acre. Of course, we don't want to evaluate these just off of one year.
[00:28:44.730]Jay Parsons: So we can look at it over the last several years, and see how it's paid out SOMETIMES IT PAYS out big SOMETIMES IT PAYS out small few times pays out, not at all. This is for that example I just did.
[00:28:58.200]Jay Parsons: This is how it has paid out over time, over the last 20 years ending in 2019 that's the 1100 dollars. I just showed you last year before it's 3900 we had a couple of goose eggs in there.
[00:29:10.950]Jay Parsons: Of course, when you hit the 2012 2013 2014 those years would have paid out fantastic but keep in mind, we don't like drought. We don't want drought.
[00:29:21.720]Jay Parsons: But the insurance would have been in place to help us 14 is when this actually started. So if you want to see how that performed
[00:29:28.410]Jay Parsons: Since its inception, you would be just looking at those last six years on average that $21 an acre producer premium returns about $28 an acre in indemnity over the last 20 years worth of data.
[00:29:42.510]Jay Parsons: How is Nebraska used annual forage. Well, not a lot to be honest with you.
[00:29:48.570]Jay Parsons: These are the numbers for 2014 through 2019. Okay, the first year 11 policies had premiums paid on them. So, I consider that, how many were taken out.
[00:30:00.570]Jay Parsons: Can have those were indemnified only about 1000 acres of coverage and the producer loss ratio is about 2.9 so that means that producer premium every dollar producer premium returned about $2 and 93 cents in a demo.
[00:30:15.990]Jay Parsons: So keep in mind that there's, there are charged with making these extra early fair. So the total premiums collected in this case about $25,000
[00:30:26.010]Jay Parsons: should match the indemnity. So in this case, it was about $35,000 so the indemnity was higher than the total premiums, but keep in mind the producer.
[00:30:34.980]Jay Parsons: Gets a subsidy. So they're only paying about $12,000 in producer out of pocket expense for $35,000 in indemnity and that's where this ratio comes from
[00:30:44.910]Jay Parsons: I bumped up a couple years after that we had, you know, about twice as much usage of it.
[00:30:50.790]Jay Parsons: Eventually, you know, dropped off here and the loss ratio last few years is is dropped off even further in terms of its being used, you know, we're down to eight policies and 2019 was eight policies taken out and 2020 I could tell you that number.
[00:31:09.390]Jay Parsons: So far those policies and 2020 and four of them have been indemnified compared to last year when we had six. We're still running right around
[00:31:18.060]Jay Parsons: This was 2000 acres last year 3000 acres this year so fairly small acreage being covered and about 80 cents. Coming back to the producer overall on average.
[00:31:29.400]Jay Parsons: For each dollar they've been paying premiums. That's the story for Nebraska for this product that's not the story on a national basis, on a national basis. We've seen a steady increase in policies taken out.
[00:31:42.900]Jay Parsons: Up to 1600 last year, a steady payout of about 90% of those are paying out in it indemnity
[00:31:51.450]Jay Parsons: And the producer loss ratio overall is about $2 and 37 cents per dollar paid in by producers.
[00:31:59.100]Jay Parsons: It's, it's pretty close here to actually sound in terms of total premiums and total indemnity but, you know, over half of those premiums are being paid by the government. So, end up with about a two to one.
[00:32:10.920]Jay Parsons: Pay back on it. Now why is that, well, take a look at the summary for the eight the eight states that actually have
[00:32:19.860]Jay Parsons: Texas is a huge user of this and always has been bought 1000 policies, almost all paid in and dominate covering 440,000 acres and basically $1 50 payback for $1 in and premiums.
[00:32:34.890]Jay Parsons: New Mexico's another example all 58 policies indemnified to 50 payback for $1 of premium Oklahoma and Colorado or the other two big users of this. They're usually in that dollar 50 to 250 range. Two years prior to this.
[00:32:53.490]Jay Parsons: But now they're just dip below that for 2019
[00:32:57.960]Jay Parsons: They've made some adjustments on it, they've started put restrictions on how many, how much coverage you can put on in Colorado, New Mexico, in particular.
[00:33:06.330]Jay Parsons: I would suspect that will continue to see adjustments on that and it states like Nebraska and and South Dakota, in particular where we've seen these producer loss ratios below one will probably see some adjustments there also, as time goes on.
[00:33:24.090]Jay Parsons: Just real quick, I'll mentioned PRF. We won't go into the detail of this because the signup is not till November 15
[00:33:31.800]Jay Parsons: But this would pertain to perennial for age it to is on the rainfall index coverage list.
[00:33:39.480]Jay Parsons: So it works very, very similar, but you're covering for the calendar year you sign up by November 15 and you basically pick your rainfall coverage for the entire next year for your perennial established forage.
[00:33:54.210]Jay Parsons: So this is the quick numbers that you'd see for that same grid that I used for the annual forage.
[00:34:02.250]Jay Parsons: You know where we had $222 for the county AVERAGE FOR THAT THE COUNTY based value for that grid.
[00:34:07.950]Jay Parsons: For PRF for perennial for each if it's used for grazing would be $58 and 90 cents an acre. If it's used for hanging it would have a higher value. It's 119 for irrigated and
[00:34:20.520]Jay Parsons: For non arrogant and I know those seen backwards. But here, remember this is rainfall insurance. And one of the ways they adjust things is through this dollar value that you can actually put on and coverage.
[00:34:34.200]Jay Parsons: Per acre. So, in the sense that you can use your irrigation to compensate for rainfall, you see that adjustment being made. I just threw together an example. So you kind of see what it costs I spread it out.
[00:34:47.640]Jay Parsons: fairly evenly, or as evenly as I could in two months intervals through the entire year again use 90% coverage. Hundred percent productivity value and it's about $53 an acre and protection and the producer portion of the premium would be about four and a half dollars.
[00:35:04.200]Jay Parsons: How is this performed over the years. Again, because I spread it out, you know, these would be the indemnity per acre. Right. So for 49 going in. This is what you get out
[00:35:14.490]Jay Parsons: Really only one year where you wouldn't have gotten anything back out. But you see some numbers here some quite a bit below the 449 so I'm quite a bit above like 2002 2011 2012
[00:35:26.370]Jay Parsons: For obvious reasons. Those were drought years if you look at it as a whole. It's about 542 back per acre on average for the for 49 premium that's about a 20% return over the long haul. About half the time your indemnity covers all of your premium.
[00:35:44.880]Jay Parsons: This is a summary for how it's been used in throughout the state in Nebraska.
[00:35:49.650]Jay Parsons: I'm pretty steady for the last several years about 1000 policies taken out. Overall, you know, we've seen roughly two thirds of those pay back some indemnity
[00:36:00.690]Jay Parsons: You can see that we pretty much settled in in this 2.2 million acre range in terms of coverage. We were up at 3.5 million acres coming out of the 2012 drought here. This obviously people were really interested in this.
[00:36:16.560]Jay Parsons: It is a little
[00:36:18.390]Jay Parsons: The temptation will be go back and pick up 2012 but in 2012 Nebraska was actually based off of the vegetation index. So this 2013 is the first year we actually had rainfall
[00:36:29.010]Jay Parsons: Index involved that you see that we were we were above one for five consecutive years since we've had rainfall last couple years we've been below that.
[00:36:39.270]Jay Parsons: And we're pretty much right at one. So basically $1 for dollar payback for the producers overall they done you know as a state as a whole. They've done it all six years.
[00:36:50.280]Jay Parsons: Quite a bit of coverage in place compared to the annual forage and it's much more established product.
[00:36:59.220]Jay Parsons: So just to finish up here, we'll look at the forge production.
[00:37:03.540]Jay Parsons: Policy and this again would be for perennial alfalfa, alfalfa grass mix that already has an adequate Stan, then you would ensure it the sale, just like regular crop insurance for the coming year. You know, like your week or anything like that. You got a
[00:37:18.390]Jay Parsons: Closing cancellation data September 30 by November 15, you have to report your acreage for the coming year. And then your premium kits build out on July one.
[00:37:28.140]Jay Parsons: Coverage runs through October 15, this would be based off of tons per acre what you expect to have based off of your a pH. So just like with regular crop insurance, you're going to have 10 years of
[00:37:41.040]Jay Parsons: production data to base your a pH off with the usual adjustments available there for you. And then you're going to ensure a period or a percentage of that and then you report against that and if you fall below the level that you ensure you would get an indemnity
[00:37:56.970]Jay Parsons: How has this performed since 2013 we would look through and how has it been used again coming out of a drought.
[00:38:05.400]Jay Parsons: Lot more interest in it than we've had lately pretty consistently, you know, a few keep them on this is only available in nine counties, but pretty consistently you know 1012
[00:38:15.780]Jay Parsons: Policies being taken out the last three years. Once in a while the pay and indemnity and I'm going to talk about that here in a second.
[00:38:24.630]Jay Parsons: A COUPLE THOUSAND ACRES being insured, although that's dropped off this year and then you can see the loss ratios over here have been steadily below one and point three eight on average over this period of time.
[00:38:38.340]Jay Parsons: Now one thing that I look at on these is basically what level are people, ensuring at. And if you look at the subsidy level as a percentage of the premium level.
[00:38:49.290]Jay Parsons: People are are getting pretty heavy subsidies on this, which tells me that they are ensuring a very low level of actual coverage.
[00:38:58.440]Jay Parsons: Which will explain some of why we aren't seeing much in the way of indemnity is over time. And that's been fairly consistent through the years.
[00:39:06.870]Jay Parsons: That the the signal here is is that people are buying this insurance but they're not ensuring at a very high level and we're not seeing a lot of indemnity paid out
[00:39:17.760]Jay Parsons: For each seating again is for the establishment of that perennial grass or or alfalfa grass mix there. This is done during the year, there's a spring sign up for it. They just changed where there's actually now I fall planting period to that you can ensure
[00:39:35.430]Jay Parsons: That this coverage is based off of the plant population that gets established so
[00:39:41.400]Jay Parsons: As you're going to ensure based off of what would be a meet the threshold as being a normal established
[00:39:50.580]Jay Parsons: Plant population is the number of acres at fall below that normal establish determines whether the number of acres, you get paid on based off of the coverage.
[00:39:59.610]Jay Parsons: There is a cat coverage available. And again, like the other mentioned cat coverage. Previously, it doesn't really pay off very well premium Southern subsidies.
[00:40:10.530]Jay Parsons: Vary from 38 67% they're pretty high. How has this been used in the state, a little bit more
[00:40:18.120]Jay Parsons: Interest in this than there is in the forage production policies. Again, this is this data here we based off of just those eight or nine counties that have been using it because we don't have data for the expanded
[00:40:29.940]Jay Parsons: Counties yet but roughly you know 30 to 40 policies being taken out fairly small percentage of those actually being indemnified
[00:40:39.540]Jay Parsons: But pretty decent indemnity ratios in terms of the actual payback for those. So when they have been identified.
[00:40:47.460]Jay Parsons: You know it's been a situation where a standard is just failed and maybe it's failed for several different producers.
[00:40:53.370]Jay Parsons: So we see a little bit quite a bit higher producer loss ratio on this one close to three overall. But of course, some of that is skewed by that 2018 year where
[00:41:03.150]Jay Parsons: People really lost a lot of their stand and got paid that quite a bit in terms of indemnity these again you hope you any insurance, you don't
[00:41:13.260]Jay Parsons: Hope to click on so I don't want to sound like I'm saying that as I go through these. But, but certainly you do, you do want to make sure that the insurance is working for you in and paying indemnity when you need it.
[00:41:26.250]Jay Parsons: So just final thing is just a note on the Farm Service Agency products that NAP coverage again as a part of the disaster program. It is
[00:41:38.250]Jay Parsons: In its at its core, it's always been 50% production coverage. A 55% of market price, which really isn't much coverage at all. You're talking basically a quarter of your productive value.
[00:41:48.990]Jay Parsons: 2018 Farm Bill included by up coverage for non grazing acres, which allows you to go up to 65% of production insured at 100% of value. So it's now operating more like a
[00:42:02.820]Jay Parsons: Regular crop insurance. But again, this is for crops that you cannot get regular insurance for. So if you're in a state or in a county that doesn't have
[00:42:12.510]Jay Parsons: The forage production insurance, you can turn the NAP is a possibility for that perennial forage that you have established to get coverage on it, LLP the livestock towards disaster program is a drought assistance after the fact.
[00:42:30.030]Jay Parsons: So if the drought monitors says the drought, a severe enough you can get up to five months of grazing value paid to you. It's 60 60% of that value.
[00:42:41.910]Jay Parsons: So this is the one that kicked in and 2012 when we saw a lot of payouts from it.
[00:42:46.800]Jay Parsons: This is the current map for the drought monitor. We have some just creeping into the state of Nebraska. Nothing yet to to put anything on the radar screen.
[00:42:57.960]Jay Parsons: For LLP LLP only play only pays out for the three most severe levels. So this dark yellow or orange ish almost that you see there the red and then the maroon
[00:43:09.300]Jay Parsons: Those are areas that are now becoming eligible for LLP payments you need at least two months of the low what they call D3, or D to sorry level. And that's the orange area.
[00:43:20.880]Jay Parsons: Distort qualify for LLP payments based off the livestock forage disaster program. This is the counties that have collected on something so far this year.
[00:43:33.690]Jay Parsons: Just way down here in Texas, only one with the red but closest ones to us is down here in southern Colorado northern New Mexico. Nothing in Nebraska or any of our neighboring counties yet.
[00:43:45.600]Jay Parsons: Everybody remembers the payouts from the 2014 farm bill because we had a whole bunch of accumulation here for basically two and a half years worth of stuff that ended up getting paid out once the Farm Bill was in place.
[00:43:58.800]Jay Parsons: So we saw these huge numbers. Since then, you know, we're talking half a billion dollars here, but since that very little pay out in Nebraska on LF P because we really haven't had a long sustained drought.
[00:44:11.910]Jay Parsons: Over any kind of widespread area at all. And there has a the data only goes that's available and it goes through 2018. So this is the most recent data. I could get out
[00:44:22.200]Jay Parsons: So that's a pretty much everything that I had to go through today. I know I went through it fairly quickly. But there there is
[00:44:33.900]Jay Parsons: You know, different coverages available that might not be aware of the annual forage is one that's probably under utilized, especially as you go to the western part of the state where precipitation is more of a big deal when it comes to that stuff.
[00:44:47.160]Jay Parsons: And we're seeing that down in Colorado, New Mexico, in particular in the southern part of the country and in right now Nebraskans aren't really using it much, and where it is being used, it may be, is it needed that much to be honest with you, based off of the way it's been paying out
[00:45:04.290]Jay Parsons: So Brad. I don't know if we had any questions come in at all, but I'd be happy to answer anything
[00:45:10.050]Jay Parsons: Any questions that you have available.
[00:45:12.810]Brad Lubben: G. I do have a couple questions that we've surface, thus far, I invite our participants. If you have questions, further questions, please type them into the chat or the Q AMP a box and we'll be able to review them and offer them.
[00:45:28.380]Brad Lubben: To pay for for an answer, or at least we hope an answer, right, Jay.
[00:45:32.100]Jay Parsons: That's right. If not, I'll make it up right
[00:45:35.370]Jay Parsons: No, I wouldn't do that. But I will look it up and get back with you if I don't know the answer.
[00:45:40.560]Brad Lubben: So, so one of the first questions is just a reminder of how this insurance purchase decision.
[00:45:47.190]Brad Lubben: Works here.
[00:45:49.350]Brad Lubben: You have to sign up for it in, in the case, the annual forage policy you haven't signed up for it now in July of 2020
[00:45:57.390]Brad Lubben: But that may be before you even really figure out whether I'm going to plan an annual for agent, how many acres. I'm going to plan. So when does the insurance actually attach and when do you, when do you report acres that will actually be insured and how do you pay for it.
[00:46:13.500]Jay Parsons: Right, so let me go back to the
[00:46:17.850]Jay Parsons: Get back to the
[00:46:18.390]Jay Parsons: planting dates. Yeah.
[00:46:19.980]Yep.
[00:46:23.700]Jay Parsons: So the growing season. Of course it is when you actually report your acres is when you're attaching the insurance, so to speak. Okay, so the the deadline of july 15 for sign up
[00:46:35.820]Jay Parsons: What needs to you need to, of course, talk to a crop insurance agent at that point, the decision that needs to be made at that point is
[00:46:42.750]Jay Parsons: What growing seasons. Do I want coverage in 123 or four are all of them for that matter. And within those growing seasons, which months. Do I want to cover precipitation
[00:46:55.140]Jay Parsons: And at what level. And when I say, at what level. It's what percent of rainfall. Do you want to have covered and what dollar value per acre. Do you want to put on that coverage.
[00:47:05.910]Jay Parsons: So at that point, you could actually calculate what your premium is going to be per acre.
[00:47:12.000]Jay Parsons: But you don't you aren't gonna basically attach the insurance to those acres until you report them. So the planting.
[00:47:21.060]Jay Parsons: Period is from July 16 of October 15th. So you have until October 15 basically to report what you plan it to them.
[00:47:27.990]Jay Parsons: And then how you know if you plan 100 acres, like I did in my example that of course them would be multiplied by your premium and then you go through the go through the year. And these would have different periods. I think it's July.
[00:47:42.810]Jay Parsons: To remember the exact if it's one for all of them. I should I should know that and look that up.
[00:47:47.640]Jay Parsons: But I know it's like regular crop insurance and that you don't have to pay that premium up front. You go through the year. And then if your indemnity outweigh your premiums, you know, they just basically take your premiums out instead of paying so
[00:48:02.010]Brad Lubben: Yeah, so, so, sign up for it now is not the same thing as saying I have to commit to how much I'm going to buy or I have to write a check today.
[00:48:11.730]Jay Parsons: Correct. And when I was putting those number I actually have numbers for how many policies were bought and it's quite a bit higher than the number of policies that had premiums paid on them.
[00:48:20.640]Jay Parsons: And then that's a case with a lot of the different crop insurance is out there. So there's a sign up where you basically declare your intent to plant the crops and
[00:48:27.750]Jay Parsons: And a desire to have insurance, but if you don't report the, you know, basically, you don't plant the crops don't import acres. You don't have a premium so it doesn't show up as a cost to you, and it certainly doesn't show up in the data as a as a policy and force.
[00:48:42.480]Brad Lubben: Jane. Other question actually, if you move ahead a couple slides to the the index there, right there, the grid.
[00:48:50.160]Brad Lubben: recognizing these these grids are broad
[00:48:53.310]Brad Lubben: Just to your perspective how effective is the rainfall index actually reflecting
[00:49:00.690]Brad Lubben: Sort of the operations real production or grazing capacity.
[00:49:06.150]Jay Parsons: Yeah, that's a good
[00:49:07.320]Brad Lubben: Question of how representative is the grid to my operation and how representative is rainfall to what to what I'm actually growing
[00:49:16.560]Jay Parsons: That's a good question because an annual forage particular you know where you got you could have soil moisture that's residual and then you plant into good moisture and things turn out fine.
[00:49:29.640]Jay Parsons: Or you or the probably the bigger issue is this you planted and you get a downpour right well rainfall index is
[00:49:39.810]Jay Parsons: Based off of lack of moisture, not too much moisture so. So there's definitely some correlation issues there on how well it actually covers your potential production losses on the annual forage.
[00:49:54.360]Jay Parsons: You know it so you know it in some places it's going to work better than other places, depending upon just basically how you get your rainfall and
[00:50:04.890]Jay Parsons: And when it comes in different times a year and and you know other factors like that and where the weather stations are too. They, they basically triangulate weather stations on this and it is a broad area. So, you know, if you're in an area where you're prone to
[00:50:22.740]Jay Parsons: You know, big rainstorms and isolated places within the, within the grid and you're not, you know, a lot of variation across the grid. I guess is what I'm trying to say.
[00:50:31.710]Jay Parsons: It might not work exactly well for you, and in what I tell people usually an annual forage is a tough one PRF is a lot better because you you have
[00:50:40.980]Jay Parsons: You know, more year usually people have more years of experience on the pastor than they might have growing annual four inches.
[00:50:47.610]Jay Parsons: But the best advice I have is to go online and use the tools available and then take a look at your production records and basically see you know what years it matched up well that the the entrance tool was paying an indemnity that you needed it.
[00:51:05.640]Jay Parsons: But one thing for people always keep in mind is that this is an index, there's not some, you know, magic person behind the behind the curtain changing the rainfall data on
[00:51:16.920]Jay Parsons: It is what it is.
[00:51:18.120]Jay Parsons: And dentists don't match up well sometimes
[00:51:20.310]Brad Lubben: And it's also not actual production, like the
[00:51:24.450]Brad Lubben: The, the perennial forage.
[00:51:26.280]Brad Lubben: That you described. So the difficulty with masonry and actual production in a
[00:51:32.310]Brad Lubben: In a for each situation, first place, let alone a graced for each
[00:51:37.560]Brad Lubben: Winter whence itself to using the rainfall index maybe as the only viable option right
[00:51:41.880]Jay Parsons: Right in that's a, it's a good point and. And one of the things that is a sticking point. I know in Nebraska, especially with people planting.
[00:51:52.140]Jay Parsons: forges, you know, looking to plant forward here in the next couple of months in August, in particular.
[00:51:57.030]Jay Parsons: Is they may they august precipitation is a big determinant on how that turns out. And you can't ensure that with this product for something that you plan to plant during this period and use this fall.
[00:52:08.400]Jay Parsons: So sometimes you, you know, you might get paid back on the actual insurance product based off of dry periods that really didn't affect your actual production.
[00:52:18.000]Jay Parsons: So it really is a situation where the you know measurement of what you get off of it. If you grace it or harvest it can vary to depending on how you use it. And so the value you get out of it and the value of the insurance product pay back to you could be quite a bit different.
[00:52:36.840]Brad Lubben: Well, I'm walking in. I don't see any additional questions from our audience today, but any final comments. Jay, you want to make on on topic. Well,
[00:52:46.710]Jay Parsons: It's, you know, the main thing with any insurances you don't get an open that it's going to save your bacon. You know, it's not more you're looking to make your money looking to make your money off of production, but when they put out these tools, the
[00:52:59.850]Jay Parsons: Only way basically we learn how to use them is to try and even if you're not convinced that you want to buy something, there's tools available online to
[00:53:09.540]Jay Parsons: Practice. Look at your situation even pretend you're buying different products and see how they would have worked out. And in a lot of these tools they they
[00:53:19.320]Jay Parsons: They can provide some value and they can provide some risk management. So it doesn't hurt to add that to your tool chest, if you need it.
[00:53:29.130]Brad Lubben: Well, Jay. Thank you very much. Thank you for the presentation and then discussion about
[00:53:34.440]Brad Lubben: Insurance and and particularly the annual forage policy. Thanks to everyone that's joined us today for the webinar. Remember that a recording of this webinar.
[00:53:42.810]Brad Lubben: As well as frankly recordings of all the webinars that we've given today are available on the website at farm W and l.edu
[00:53:50.850]Brad Lubben: Of course, there is also a schedule of upcoming webinars and we continue to add new webinars each week. I think there's a schedule of the next two weeks up there now available for your information, you can register for those upcoming webinars. If you see them of interest.
[00:54:06.450]Brad Lubben: Check the website again farmed it and nailed it to you for a schedule next week's webinar will be again be Thursday at noon Tata entitled cash flowing the other side to the other side of code 19

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Webinar: Insurance Tools for Managing Forage Production Risk (July 2, 2020)

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