Managing Precipitation Risk for Pasture and Annual Forage by Jay Parsons

Jessica Groskopf Author

02/27/2018 Added

40 Plays

Description

Precipitation can be highly variable in Nebraska. This creates uncertainty in forage production on our perennial pastures and non-irrigated croplands. The USDA Risk Management Agency provides precipitation risk management tools in the form of Pasture, Rangeland, Forage (PRF) insurance and the Annual Forage Insurance Program to help combat this issue. This presentation will help you better understand the features of these programs and investigate how to include them in risk management plans for your farm or ranch. We will discuss specific examples, historical results, and implementation strategies that help you meet your risk management goals.

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[00:00:02.563]Hello, my name is Jay Parsons,
[00:00:04.880]I'm an associate professor in the
[00:00:06.730]Department of Agricultural Economics,
[00:00:08.240]here at the University of Nebraska in Lincoln.
[00:00:10.450]I'm also an extension specialist,
[00:00:11.840]focused on farm and ranch management.
[00:00:13.623]So basically my area of focus is in helping farmers
[00:00:17.460]and ranchers make good choices,
[00:00:19.405]given the information hat they have available to 'em.
[00:00:22.380]So today I'm gonna talk about managing
[00:00:24.510]precipitation risk for pasture and Annual Forages.
[00:00:27.754]And specifically I'm gonna talk about a couple
[00:00:30.220]of insurance tools that are available
[00:00:31.930]from the USDA Risk Management Agency.
[00:00:34.731]But to start off with I wanna remind everybody
[00:00:37.670]that there are five main sources or risk in agriculture.
[00:00:42.610]The first one is marketing and price risk,
[00:00:45.250]which is pretty self explanatory
[00:00:46.900]and most of us are well aware to the volatility
[00:00:50.230]in the commodity prices and what we get
[00:00:52.660]for our product that we produce.
[00:00:54.810]The second area is production risk,
[00:00:56.470]and again we're pretty well aware of the effects of weather
[00:00:59.440]and the variations that we see in the
[00:01:01.490]actual volume of product that we produce.
[00:01:04.705]But there are some other areas that are equally important,
[00:01:07.471]and come into play in different scenarios.
[00:01:10.580]One of 'em is insitutional and legal risk,
[00:01:13.240]which is brought about by the influences
[00:01:15.300]of people outside of our organization.
[00:01:17.770]Another one is human risk,
[00:01:19.160]which is influenced by people inside of our organization.
[00:01:23.064]And then the last one is financial risk,
[00:01:25.260]which all of these first four actually play into,
[00:01:28.540]as far as influencing our ability to meet
[00:01:30.530]our financial obligations.
[00:01:33.110]So I started with this 'cause all five of these
[00:01:35.640]are very important when it comes to managing risk
[00:01:38.580]in agriculture, and I don't mean to slight any of 'em,
[00:01:41.720]but today our focus is gonna be
[00:01:43.640]in particular on production risk,
[00:01:45.560]as it pertains to the effects of lack of precipitation.
[00:01:50.972]Okay, so when we say production risk,
[00:01:53.330]we're really talking about fluctuations in yield.
[00:01:55.450]So are the physical quantity of what we
[00:01:57.850]actually produce on our farm or our ranch, okay?
[00:02:01.229]So what contributes to that,
[00:02:02.930]I already mentioned the word weather,
[00:02:05.140]and of course that's a big one in agriculture,
[00:02:07.643]because predominantly we're producing out in the elements,
[00:02:11.470]okay, and so the weather is gonna influence
[00:02:14.219]our actual yields whether we have foo precipitation,
[00:02:16.460]poor precipitation, good growing degree days or not.
[00:02:20.710]So it's a big influence on that,
[00:02:22.020]and that's much different than what we see
[00:02:23.540]in other production environments,
[00:02:25.771]say for example, in a factory,
[00:02:27.368]where I'm manufacturing a car or something like that
[00:02:28.950]that I can do it in a controlled environment.
[00:02:31.070]So, production risk is a big deal in agriculture.
[00:02:34.010]Weather's not the only thing that does effect that.
[00:02:37.170]Pest, diseases, genetics,
[00:02:39.920]the effects of wildlife that can come into play
[00:02:42.620]in terms of destructing your crop,
[00:02:44.795]or maybe killing off some calves or something like that,
[00:02:48.290]and then of course the timing of operations,
[00:02:50.240]in particular harvest,
[00:02:51.390]getting the crop out of the field at the prime time,
[00:02:55.190]can also influence your yield quite a bit.
[00:02:57.840]So all of those play into that.
[00:02:59.583]As I said though, today we're gonna primarily focus
[00:03:02.420]on the weather issue and precipitation.
[00:03:05.603]Okay, what are some tools that you can use
[00:03:08.190]to address production risk?
[00:03:10.280]Certainly selecting low production risk
[00:03:12.030]enterprises can play into that,
[00:03:13.530]things that aren't influenced as much by the weather,
[00:03:16.586]or that are more resilient to the weather,
[00:03:19.110]or something like that can come into play.
[00:03:22.200]Maintaining flexibility
[00:03:23.490]and extra capacity is another strategy
[00:03:28.090]or approach to controlling production risk.
[00:03:31.330]And if you think about that in terms of extra capacity
[00:03:34.270]that's becoming a lot harder to do these days
[00:03:36.890]because our margins are so low.
[00:03:38.840]It's hard to keep things in reserve, you know,
[00:03:41.420]we pretty much gotta put all our resources to use
[00:03:43.514]in order to make a profit in today's age.
[00:03:46.820]So that's becoming harder along with
[00:03:48.500]some of these other things like
[00:03:50.340]utilizing land over a widespread area, of course,
[00:03:54.150]you know, that involves travel, if that's the case,
[00:03:57.010]but as far as controlling production risks,
[00:03:59.930]then we're not as influenced say
[00:04:01.250]by a cell of really dry weather
[00:04:03.880]or really wet weather, whatever the case may be.
[00:04:06.890]If we have land over a wide area,
[00:04:08.410]that can control production risk quite a bit.
[00:04:10.940]And of course using low production
[00:04:12.979]low risk production practices,
[00:04:15.478]like irrigation, or in the case of livestock,
[00:04:19.570]maybe you're vaccinating everything
[00:04:21.836]and doing things like that to control variations,
[00:04:25.250]or possible variations in production.
[00:04:27.340]Diversification is a big one too.
[00:04:29.677]You have different crops that you grow,
[00:04:32.090]maybe they're not all influenced by low
[00:04:34.440]or high precipitation,
[00:04:35.640]there's a specific time in the year
[00:04:37.650]that can level out your income,
[00:04:39.220]level out your production quite a bit.
[00:04:41.140]And then finally crop insurance.
[00:04:43.340]And crop insurance of course has been around
[00:04:45.070]for the main crops like corn and soy beans,
[00:04:48.800]and wheat, and like that for a long time.
[00:04:50.650]But today we're gonna talk about crop insurance
[00:04:52.810]in the context of some precipitation risk insurance,
[00:04:57.116]in particular, as it applies to forage.
[00:05:02.120]So what are the main strategies for managing risk?
[00:05:05.790]I pointed out the controls,
[00:05:08.270]but how do those relate to strategies?
[00:05:10.340]Well it turns out there's really only four main strategies
[00:05:13.090]for managing risk, so I wanna articulate those,
[00:05:16.080]and a couple of 'em are pretty trivial,
[00:05:17.500]one of them is to simply avoid the risk itself,
[00:05:20.220]so if you don't like the risk associated
[00:05:22.459]with something in particular,
[00:05:24.670]maybe it's a market risk or whatever,
[00:05:26.380]you just don't engage in that activity,
[00:05:27.950]and you avoid that risk, and that's certainly a strategy.
[00:05:31.100]But of course,
[00:05:32.090]most cases we do wanna engage in that activity,
[00:05:34.830]'cause we wanna reap the rewards that go with it,
[00:05:37.260]and so we're trying to deal with risk somehow,
[00:05:40.013]within the organization or one of the main strategies,
[00:05:44.464]is to try to transfer it outside the organization.
[00:05:48.200]Okay?
[00:05:49.033]And there's two primary ways of doing that.
[00:05:51.410]We got insurance and contracting if you will,
[00:05:54.235]the insurance is one that we'll talk about here in a second,
[00:05:57.280]in that case we pay a premium to transfer
[00:05:59.690]the risk outside to an insurance organization.
[00:06:02.120]Or at least part of the risk outside to them.
[00:06:04.340]In a contracting situation we're usually giving up
[00:06:07.020]some sort of price difference, if you will,
[00:06:09.966]from what the expectation is for the prices,
[00:06:13.503]and what they're actually offering us for our contract.
[00:06:16.520]And the reason we give that up is in exchange
[00:06:18.630]for getting rid of the possible
[00:06:20.330]volatility in that ending price.
[00:06:22.510]But in either case we're transferring that particular risk
[00:06:25.700]outside the organization by giving up some sort of
[00:06:28.720]a monetary value within our organization.
[00:06:31.470]Okay?
[00:06:32.303]The other primary method of dealing with it
[00:06:35.500]is to control it within your organization,
[00:06:37.375]and understand that when you're
[00:06:38.960]controlling risk within your organization,
[00:06:41.410]you can usually just do one of these two things,
[00:06:44.490]you can either control the probability
[00:06:46.120]of the risk or you can control the impact of the risk.
[00:06:49.899]So an example of controlling probability of risk
[00:06:52.920]would be maintaining your equipment really well
[00:06:55.830]so that the probability of the equipment
[00:06:57.730]actually breaking down is lower, okay?
[00:07:01.630]But you know, a lot of times though,
[00:07:03.750]you were looking at controlling the impact of the risk,
[00:07:07.130]and so that would be a situation where we keep
[00:07:10.390]extra reserves on hand, you know,
[00:07:13.410]that if the drought happens, okay,
[00:07:15.800]we can't control the probability of a drought for example,
[00:07:18.710]but we can control the impact of a drought
[00:07:21.270]by having the extra feed on hand so we have extra reserves
[00:07:24.380]in case that actually materializes.
[00:07:27.270]We can also maintain flexibility,
[00:07:29.620]so we have the flexibility for example,
[00:07:32.200]of taking some cattle off of the range
[00:07:34.700]and moving 'em to some crop land or something like that.
[00:07:37.776]So the drought happens,
[00:07:39.760]but we have flexibility for dealing with it.
[00:07:42.850]And then diversification of course.
[00:07:45.170]So in a diversification standpoint,
[00:07:47.704]we have different portfolios,
[00:07:50.760]say forge that we might rely on to feed our cattle,
[00:07:54.140]and so you know, the effects of the drought
[00:07:56.290]are actually different across that portfolio.
[00:07:59.050]So when one things not doing quite so well,
[00:08:01.430]another thing might be doing well.
[00:08:03.040]It could be just a dispersion across land area,
[00:08:05.545]could be the actual forage that's in place on that
[00:08:08.360]cool season, warm season grasses, and so on.
[00:08:11.210]But a number of different ways that can come into play.
[00:08:14.080]So within, as a manager dealing with risk,
[00:08:17.240]if we're not totally avoiding it,
[00:08:18.840]we're usually looking to transfer it outside
[00:08:20.980]the organization through insurance or contracting,
[00:08:23.410]or we're looking at ways of
[00:08:24.350]controlling it inside the organization.
[00:08:27.150]Either by controlling the probability
[00:08:28.820]or controlling the impact if the risk actually occurs.
[00:08:32.020]And I said there's four,
[00:08:33.450]the fourth one is to simply accept the risk.
[00:08:35.590]And you know this is one where people look at,
[00:08:38.760]and they say well what do you mean by that?
[00:08:41.100]How's that really a strategy?
[00:08:42.000]Well that's saying, it's the opposite of the first one,
[00:08:44.400]of totally avoiding it, but it's saying that we
[00:08:46.720]do wanna be engaged in this activity,
[00:08:49.357]maybe there's no tools at all to
[00:08:51.970]actually control the risk at all,
[00:08:54.370]but maybe there is tools but they're too expensive
[00:08:57.080]and we don't wanna pay for them, okay,
[00:08:59.568]so they're not worth what we'd have to pay for 'em
[00:09:01.280]in terms of what we'd get from 'em,
[00:09:02.920]so our strategy in that case is
[00:09:04.521]yes we still wanna go ahead and grow that corn crop
[00:09:07.657]or raise that livestock, whatever the case may be,
[00:09:10.770]but we're gonna go ahead and accept the risk
[00:09:12.520]and uncertainty that goes with it.
[00:09:14.860]So understand all of these are available
[00:09:16.530]and just like we had five different areas of risk,
[00:09:18.600]we have four different strategies for dealing with risk,
[00:09:21.250]we're gonna focus specifically on production risk today,
[00:09:23.814]and specifically on insurance that controls,
[00:09:27.810]that precipitation risk that goes with growing forages.
[00:09:33.466]Okay, so when we think about the
[00:09:36.100]Federal Crop Insurance Program,
[00:09:38.070]it's important to distinguish between what we see
[00:09:41.320]from the USDA-Risk Management Agency,
[00:09:43.420]which is where our traditional crop insurance comes from,
[00:09:45.721]and then what we might see from the farm service agency.
[00:09:49.040]Okay, USDA-Risk Management Agency,
[00:09:51.397]when it comes to livestock and forage,
[00:09:54.480]these are the three primary insurance products
[00:09:57.190]that they have available.
[00:09:59.193]And most of these are fairly recently came out,
[00:10:02.139]so within the last 15 years,
[00:10:03.534]they haven't been around for ages like, say,
[00:10:05.940]crop insurance for wheat or crop insurance for corn,
[00:10:08.530]which goes back decade,
[00:10:10.125]most of these have come out since 2003.
[00:10:13.350]So the first one of these on the list
[00:10:14.810]is the Livestock Risk Protection insurance program,
[00:10:18.610]and that is a price insurance program, okay,
[00:10:21.530]and so it's tied to the Chicago Board of Trade,
[00:10:25.440]and the expectations for livestock prices.
[00:10:28.109]The second one is the one that we're gonna focus on here,
[00:10:31.400]in just a moment, and that's the Rainfall Index insurance,
[00:10:34.440]which is the precipitation risk insurance,
[00:10:37.660]tied to forages, Pasture, Rangeland,
[00:10:39.810]and Forage is one variety of it,
[00:10:42.060]and Annual Forage is the other one that we'll speak of.
[00:10:44.840]And then Whole Farm Revenue Protection insurance,
[00:10:48.148]which came out just recently,
[00:10:49.770]and it's tied to the overall
[00:10:51.720]revenue for the farm or the ranch
[00:10:53.917]and it used to not be real appealing to livestock producers,
[00:10:58.430]'cause there's a lot of restrictions in place,
[00:11:00.480]and recently they've changed that to where
[00:11:02.220]it's a little more appealing to them
[00:11:04.299]in terms of the level of insurance
[00:11:05.450]that you can put in place and so on.
[00:11:07.246]But it looks at the overall revenue for the farm as a whole,
[00:11:13.060]and not necessarily for individual commodities.
[00:11:16.920]It's just how they aggregate to
[00:11:18.870]the overall farm revenue line.
[00:11:22.240]So all of these products, along with regular crop insurance
[00:11:25.310]for wheat and corn and so on,
[00:11:27.300]are part of the Risk Management Agency program,
[00:11:30.340]so rma.usda.gov is where you'll
[00:11:33.815]find out information on them.
[00:11:36.198]And as I said, we'll be focusing on the second one of these,
[00:11:39.530]the Rainfall Index insurance today,
[00:11:41.460]so pretty much everything I show you,
[00:11:43.050]you can go to their website and dig into for yourself.
[00:11:46.691]Alternative to this is the Farm Service Agency Programs,
[00:11:51.070]and a lot of people get these confused,
[00:11:53.220]and they go to the Farm Service Agency
[00:11:54.820]looking for RMA tools or vice versa.
[00:11:57.719]But the Farm Service Agency Programs is
[00:12:01.286]where your regular farm bill type of programs come out.
[00:12:04.080]And most of these take the form of disaster assistance,
[00:12:08.019]which basically means that you have to have
[00:12:11.450]a pretty severe impact, usually 50% or greater,
[00:12:14.920]before they would kick in and help you out.
[00:12:18.428]And then they only usually help you out
[00:12:20.730]at about 55% of expected price.
[00:12:24.870]NAP, the first one on the list,
[00:12:26.860]Noninsured Crop Disaster Assistance Program,
[00:12:28.980]it's the one that's most applicable to the forage producers.
[00:12:33.170]And again, it's one that is gonna,
[00:12:37.013]on the surface it looks a lot like crop insurance,
[00:12:41.420]and with the 2014 Farm Bill it looks even more like it,
[00:12:44.490]'cause you can purchase buy up coverage on it and whatnot.
[00:12:49.340]But it's one where you could get coverage,
[00:12:51.810]you basically pay a few of 250 or 300 dollars,
[00:12:54.560]depending on situation, but usually $250 per crop per county
[00:12:58.073]and you can cover all your acres.
[00:13:00.840]In the disaster form of it it only is going to cover
[00:13:04.050]if you actually have production below the 50% level,
[00:13:07.690]and then it's only gonna cover you
[00:13:10.287]at a 55% of the market price on it.
[00:13:12.260]And it's available for crops where
[00:13:13.850]you don't have regular crop insurance available.
[00:13:17.688]So a lot of the forages in Nebraska and other states
[00:13:21.440]fall under that NAP program if you wanna turn to it.
[00:13:24.620]Livestock Forage Disaster Program is for,
[00:13:28.002]it's tied to drought monitors,
[00:13:30.960]and the drought map that we often see
[00:13:33.480]put out by the Climate Prediction Center.
[00:13:36.940]So if your area's been declared in a severe drought
[00:13:40.693]for a number of months at a certain level,
[00:13:43.570]they'll declare it as being eligible
[00:13:45.590]for Livestock Forage Disaster Program payments,
[00:13:48.570]and again that's based off of grazing value,
[00:13:51.230]and it's only a fraction of it,
[00:13:52.770]and it has to be declared by
[00:13:54.490]the Drought Center in the region that you're in.
[00:13:57.655]The Livestock Indemnity Program deals with death loss.
[00:14:01.061]And again, weather event related primarily there,
[00:14:04.970]so blizzards and severe heat.
[00:14:07.700]Emergency Assistance for Livestock,
[00:14:09.410]Honey Bees, and Farm-Raised Fish,
[00:14:11.010]the ELAP program, also falls under that,
[00:14:13.600]but all four of those are disaster programs,
[00:14:15.994]so they're not necessarily meant to be viewed as insurance,
[00:14:19.520]but they kinda operate as a skeleton,
[00:14:21.830]or basic insurance to at least give you
[00:14:24.830]a little bit of money when things are very severe,
[00:14:27.790]as a disaster would imply.
[00:14:30.990]Conversation Reserve Programs are also from the NRCS,
[00:14:33.890]are also issued of the FSA office,
[00:14:36.410]and I just mention those because they're an opportunity,
[00:14:39.060]in some cases, especially in grazing lands,
[00:14:40.950]to get a fixed payment for some sort of
[00:14:42.830]conversation practice that you have going on,
[00:14:44.920]and that can help mitigate risk too.
[00:14:48.622]So this is kind of a laundry list
[00:14:51.070]if you're a livestock or forage producer
[00:14:52.780]of what's available out there for you to think about.
[00:14:55.980]It's important though to remember that the FSA programs,
[00:14:59.746]they're gonna reside at your local FSA office,
[00:15:03.250]Farm Service Agency office,
[00:15:05.040]and online they'll be fsa.usda.gov,
[00:15:08.100]where you go to find that information.
[00:15:10.040]And then the Crop Insurance Programs
[00:15:11.490]would come from rma.usda.gov.
[00:15:15.539]So with all that as a background,
[00:15:17.230]let's go ahead and let's dig into
[00:15:19.530]some of the details here on the crop insurance side,
[00:15:22.281]and RMA is begun issuing a lot of information
[00:15:28.090]out there on their website,
[00:15:28.990]and I really encourage you to go look.
[00:15:30.920]And a lot of details on a state by state basis,
[00:15:34.210]and a county by county basis,
[00:15:35.700]in terms of what insurance is available,
[00:15:37.430]how it's been working, paying out premiums,
[00:15:39.670]collected, et cetera, and one of the things they produce
[00:15:43.775]is an annual report for each state.
[00:15:44.900]And it comes out in February,
[00:15:46.200]and at the time I put these slides together,
[00:15:49.050]the latest one had been issued in February of 2017,
[00:15:52.140]and it gives an annual report
[00:15:53.540]for 2016 in the state of Nebraska.
[00:15:56.260]So it will tell you at the top part of this,
[00:15:58.560]it will tell you all of the stuff
[00:16:00.740]that you have available in terms of the
[00:16:02.900]different crops that are available,
[00:16:04.512]and the insured acres, total acres,
[00:16:06.450]and the percent that's insured there.
[00:16:08.220]And then at the bottom where the pilot programs lie,
[00:16:11.060]is where the programs that we're gonna look at here today,
[00:16:13.560]the two in particular, the first one on this list,
[00:16:16.070]is the Annual Forage Insurance.
[00:16:17.700]And in Nebraska in 2016, there was $827,000 worth
[00:16:22.640]of liability coverage on that one.
[00:16:24.818]And then the third one on this list,
[00:16:26.380]the Pasture, Rangeland, and Forage,
[00:16:28.620]which you can see right here with the
[00:16:30.936]all counties are covered in it,
[00:16:33.100]but if you go over here on the right here,
[00:16:34.590]you've got about 64 and a half million dollars worth
[00:16:37.570]of coverage in place in Nebraska in 2016 with that one.
[00:16:41.970]So that had quite a bit of coverage.
[00:16:43.720]Some of the other ones I mentioned,
[00:16:44.830]Whole Farm Revenue Protection,
[00:16:46.210]had about eight and a half million.
[00:16:48.430]I mentioned the Livestock Risk Protection,
[00:16:50.550]which is down at the bottom, the very bottom line,
[00:16:52.640]you can see we had about 10.8 million dollars worth
[00:16:55.360]of protection in place on that for feeder cattle
[00:16:58.220]in the state of Nebraska.
[00:17:00.290]We're gonna look at the precipitation products,
[00:17:02.890]the Annual Forage, the first one on this list,
[00:17:04.840]and the Pasture, Rangeland, Forage,
[00:17:06.663]here at the time that we have left today.
[00:17:10.208]So both of those of course are
[00:17:13.055]run through the USDA-Risk Management Agency.
[00:17:17.446]They both rely on a Rainfall Index,
[00:17:20.230]and it's important for people to understand
[00:17:21.930]that USDA doesn't determine the Rainfall Index.
[00:17:25.890]The Rainfall Index is actually determined by NOAA,
[00:17:28.790]and so it's independent of the actual USDA Program
[00:17:33.010]that manages the insurance.
[00:17:35.950]So people come to me and say you know,
[00:17:38.060]they don't have, where'd they get their data,
[00:17:40.310]they don't know what they're doing
[00:17:41.280]when they do the precipitation.
[00:17:42.410]Well they're actually relying on the
[00:17:44.808]weather experts at NOAA to provide that index for them.
[00:17:47.896]That index is used for both the
[00:17:50.360]Pasture, Rangeland, and Forage insurance,
[00:17:54.360]and it's also used for the
[00:17:55.370]Annual Forage Insurance Program that are available.
[00:17:58.950]So how does it work?
[00:18:01.371]Well it's based off of a grid system.
[00:18:04.280]So each grid is one quarter of a degree longitude
[00:18:10.240]by one quarter of a degree latitude.
[00:18:12.910]At the equator that equates to a 17 by 17 mile grid.
[00:18:17.380]Of course as you go up on the globe
[00:18:19.580]and the curvature of the earth and what not,
[00:18:21.870]that gets distorted a bit,
[00:18:23.290]but that gets you an idea of how big the grid actually is.
[00:18:27.210]And so within that grid,
[00:18:28.660]NOAA has collected data all the way back to 1948.
[00:18:32.100]And based off of that data,
[00:18:33.560]they have an expected rainfall amount for that grid,
[00:18:37.150]and that's what you're insuring on
[00:18:38.970]in terms of this precipitation risk products.
[00:18:43.158]So here's the way it works.
[00:18:46.667]Back to 1948, they'll have an average for that grid
[00:18:50.490]for the interval that you're actually insuring,
[00:18:52.820]and these are both triggered off of two month intervals.
[00:18:57.063]And that determines 100% to where the expected grid index.
[00:19:01.320]You as the insurer can insure up to 90% of that,
[00:19:06.250]it's anywhere from 70 to 90% at 5% increments,
[00:19:09.615]and then if the actual grid index for
[00:19:12.410]the interval that you insure falls below that,
[00:19:14.560]so precipitation is below 90% of expectation,
[00:19:18.556]if you insure at 90% or whatever,
[00:19:20.998]then you get paid on that.
[00:19:22.810]Okay, so for this quick example here that I have,
[00:19:25.690]I put a coverage in here of 75%,
[00:19:28.230]so the producer decided to insure 75% of expected rainfall.
[00:19:33.350]If the rainfall falls below, as I have indicated right here
[00:19:36.370]with the actual grid index,
[00:19:38.590]let's just say that was at 65% of normal for that,
[00:19:41.287]then that gap would be 10%,
[00:19:43.447]it's that 10% gap that you would collect an indemnity on.
[00:19:47.110]And the indemnity would be that 10%
[00:19:50.310]of whatever the insured value is
[00:19:52.029]that you had attached for that interval,
[00:19:55.960]and I'll go through some examples of that here in a second.
[00:19:58.640]But the idea or the basic idea behind
[00:20:00.800]it is pretty straight forward,
[00:20:02.310]that is at precipitation is basically correlated
[00:20:07.070]with your ability to produce forage,
[00:20:09.400]and if precipitation is low,
[00:20:11.968]we wanna compensate you for that low precipitation on the
[00:20:14.290]premise that you actually got lower forage production.
[00:20:20.601]Alright, so let's start with
[00:20:22.270]Pasture, Rangleand, and Forage insurance,
[00:20:24.590]and this is the more mature of the two products.
[00:20:27.558]Mature in the sense that it's evolved since about 2006,
[00:20:31.670]when it was first introduced,
[00:20:33.620]all the way now to where it's
[00:20:34.990]available in the entire continent of the US,
[00:20:38.297]every county has it available.
[00:20:40.060]So there's no ambiguity on is it in my county or not,
[00:20:42.174]as long as you're down here in the lower 48.
[00:20:46.832]As I mentioned, it is based off of that grid,
[00:20:49.610]that roughly 16 or 17 mile by 17 mile grid.
[00:20:54.552]And you're insuring the index based
[00:20:59.350]on the precipitation for that grid,
[00:21:00.860]not necessarily the precipitation
[00:21:03.380]that happens on your property.
[00:21:05.010]Your property needs to be in the grid, right,
[00:21:07.810]to be qualified for the insurance,
[00:21:10.070]but you might be, you know, that's a pretty big sized grid,
[00:21:13.060]so you might have your property say,
[00:21:14.490]down here in the corner,
[00:21:15.980]or maybe down here in this corner right here,
[00:21:19.780]and you got a few acres in there
[00:21:21.650]and you insure it and the weather turns out a certain way
[00:21:25.100]and you're dry, say for example,
[00:21:27.050]it doesn't necessarily mean that
[00:21:28.430]the grid index as a whole is dry.
[00:21:30.344]So the biggest complaint I see on this
[00:21:31.898]when I mention this product to producers,
[00:21:34.538]is they talk about how I didn't have a precipitation
[00:21:39.500]and I didn't get paid.
[00:21:42.368]Well, you had 100 acres out of these 1000's of acres
[00:21:46.404]that would be in this grid,
[00:21:49.479]and yeah, the grid index itself was at least
[00:21:53.042]close enough to normal that you wouldn't have gotten paid.
[00:21:56.630]Or it could work the opposite, right?
[00:21:58.110]You could have decent precipitation
[00:21:59.640]but the grid as a whole is dry, so you do get paid.
[00:22:02.580]So there is some basis risk there
[00:22:04.310]in terms of how you're actual rainfall turns out,
[00:22:07.160]how your forage actually turns out,
[00:22:08.940]and what the grid index says.
[00:22:11.440]But, I would emphasize that nobody's behind
[00:22:14.714]the curtains with a string and messing with the numbers,
[00:22:18.460]the NOAA's the one reporting the index
[00:22:21.232]based off of their weather data that they have available,
[00:22:24.480]to determine the actual precipitation for that grid.
[00:22:28.180]So it doesn't take into consideration the exact situation,
[00:22:30.980]but producer it is a group insurance policy,
[00:22:34.996]based off of the entire grid.
[00:22:37.332]It's fairly complicated, if your property overlaps grid,
[00:22:41.540]which is common with large pastures,
[00:22:43.551]you really wanna work with your crop insurance agent
[00:22:47.490]in terms of seeing what your possibilities are there,
[00:22:50.324]but if it's one continuous property,
[00:22:52.721]you've got a lot of choices, right.
[00:22:54.490]You can just put it all in one grid,
[00:22:56.460]you can break it out based off of
[00:22:58.130]the acres in each grid and so on.
[00:23:00.067]But you definitely wanna work with your insurance agent
[00:23:03.475]to make sure that you do what you intend to do there,
[00:23:07.590]and what your options are for dealing with that
[00:23:09.530]if you're in more than one grid.
[00:23:13.300]Okay, so this is the
[00:23:14.700]Pasture, Rangeland, Forage, Support Tool,
[00:23:17.020]and it is available on the RMA website, rma.usda.gov,
[00:23:21.150]and what I recommend producers,
[00:23:23.040]if they're interested in this
[00:23:24.270]is go online and get into this support tool
[00:23:27.950]and find the pasture that you're
[00:23:29.944]actually interested in insuring,
[00:23:30.890]and look historically at how it might of performed
[00:23:33.578]with these products, okay?
[00:23:35.900]So I pulled up an example here,
[00:23:38.260]and you see the blue pin on here
[00:23:39.870]that's on Kearney, Nebraska.
[00:23:42.096]And Kearney, Nebraska is up in the,
[00:23:45.160]well what would amount to the northeast quadrant
[00:23:47.550]of grid number 24724.
[00:23:50.340]So that's what I'm basing my data on here,
[00:23:52.950]that I'm gonna show you here in a moment,
[00:23:54.640]but the premise is that you have pasture
[00:23:56.970]someplace in this grid, who knows where it is,
[00:23:58.938]but that your pasture resides in this grid,
[00:24:01.673]and you're looking to go ahead and purchase
[00:24:03.730]Pasture, Rangeland, and Forage insurance for it,
[00:24:06.760]how would that work.
[00:24:08.151]So first of all you need to know what grid you're in,
[00:24:11.180]and that's easy enough to find,
[00:24:12.640]it's just a Google Maps application
[00:24:15.200]and you can type in your address
[00:24:17.334]and where your longitude or latitude,
[00:24:18.640]and it'll put a pin down,
[00:24:19.650]or you can physically put a pin down
[00:24:21.670]once you find your pasture that you wanna insure.
[00:24:24.968]So, we're using that today to work with.
[00:24:28.970]And one thing to understand with the
[00:24:31.370]Pasture, Rangeland, and Forage insurance,
[00:24:33.650]is that you need to sign up for it,
[00:24:35.580]it's a calendar year product,
[00:24:36.970]you need to sign up for it by November 15th.
[00:24:40.009]And then the actual coverage would go
[00:24:42.680]from January one to December 31, okay.
[00:24:46.616]And for this example I'm using the Buffalo County,
[00:24:51.510]Nebraska, grid number 24724, which is the one that Kearney
[00:24:55.850]is in that I just showed you on the map.
[00:24:57.990]For pasture and rangeland in that county,
[00:25:00.320]the base value, or the base productive value,
[00:25:03.100]determined by RMA is $24.80 an acre,
[00:25:06.720]and that'll vary by county.
[00:25:09.270]And it'll also vary by crop type.
[00:25:11.020]Now I'm gonna do a pasture example here,
[00:25:12.990]if you were doing a forage example,
[00:25:14.960]or irrigated forage in particular,
[00:25:16.810]that number would be different.
[00:25:19.010]But you have the ability as a producer to adjust
[00:25:21.770]that a little bit with your productivity factor.
[00:25:25.470]And your productivity factor can run from
[00:25:27.250]60% to 150% of that county base value.
[00:25:32.220]So in this case, for this particular producer,
[00:25:35.340]if you had pasture in this particular grid,
[00:25:38.100]you could run from 14.88 to 37.20 an acre,
[00:25:42.030]you choose, that's the dollar value that you are putting
[00:25:45.830]on per acre that you wanted to insure.
[00:25:48.110]So they give you a county based value,
[00:25:49.870]you have some flexibility to move around that
[00:25:52.440]to match your particular needs,
[00:25:53.940]'cause at the end of the day,
[00:25:55.380]you're putting dollars worth of coverage
[00:25:57.360]on your property on a per acre basis
[00:25:59.920]in terms of what you want to insure.
[00:26:02.113]The other thing to keep in mind is these rainfall indexes
[00:26:06.030]are on two month intervals.
[00:26:07.673]You can't put more than 60% of your dollar value of coverage
[00:26:11.350]in any one two month intervals.
[00:26:13.560]So that's the max,
[00:26:14.393]so you gotta split it at least between two intervals.
[00:26:17.000]And if you're gonna put insurance in an interval,
[00:26:18.830]it's gotta be at least 10% of the total
[00:26:20.570]dollar value that you insure.
[00:26:23.130]And then finally you can't overlap intervals,
[00:26:25.270]so when we look at this right here with that condition,
[00:26:29.282]do for example the February, March interval,
[00:26:32.430]let's just say you wanted to insure that,
[00:26:34.940]if you did you couldn't insure March, April,
[00:26:37.100]'cause you'd be insuring March twice.
[00:26:39.220]So there is that condition on there.
[00:26:41.742]And once again this rma.usda.gov website
[00:26:45.411]is where all of this information is available,
[00:26:48.458]so again, I encourage you to go there
[00:26:50.371]and work with the actual tool if you wanna
[00:26:53.250]see how it'd fit your operation.
[00:26:55.106]So this is what the tool looks like,
[00:26:56.950]now you're not gonna be able to read that obviously,
[00:26:58.370]'cause that's pretty small print,
[00:26:59.380]but we're gonna break it down, and look at these up close,
[00:27:02.153]we'll start over here on the far left,
[00:27:04.752]with the production information
[00:27:07.710]and do the policy information and
[00:27:09.290]then work our way into this grid here where
[00:27:11.460]all the details are here in a second.
[00:27:13.830]So for this particular example,
[00:27:15.680]I plugged in a grazing example.
[00:27:18.643]Now with grazing, you don't select the irrigation practice
[00:27:22.570]so the organic practice.
[00:27:23.930]If you're growing forage for hay,
[00:27:26.100]those would be available to you to actually select.
[00:27:30.950]The coverage level I chose was 90%,
[00:27:32.840]so that means I'm insuring 90% of normal precipitation.
[00:27:38.170]So that's the highest level I can go at.
[00:27:40.117]I went ahead and put in a productivity factor of 100.
[00:27:43.269]So that means up here on the top here,
[00:27:45.950]that I'm accepting that county based value of $24.80
[00:27:49.432]as the productive value of my
[00:27:51.354]property that I'm insuring here.
[00:27:53.949]Now I insured 90% of the rainfall,
[00:27:57.830]so 90% of 24.80 gives me 22.32,
[00:28:02.715]as a actual dollar amount of protection.
[00:28:06.488]Insurable interest,
[00:28:08.454]that's in there in case you're in a rental situation,
[00:28:12.170]you don't have 100% interest in the property.
[00:28:14.600]And for purposes of this example,
[00:28:16.210]I just did 640 acres, which would be a section of land,
[00:28:19.100]one square mile,
[00:28:20.650]so we could see how those numbers would work out.
[00:28:23.337]So with 640 acres insured,
[00:28:26.330]and 22.32 for the dollar amount of coverage,
[00:28:29.560]that works out to about $14,285 in protection.
[00:28:33.414]And then lastly, and this is important to realize
[00:28:36.700]that this is heavily subsidized anywhere from 51 to 59%
[00:28:40.172]depending upon your coverage level.
[00:28:42.312]And if you cover up at the max at 90% of precipitation,
[00:28:45.930]it's subsidized at 51%.
[00:28:48.420]So for our example then,
[00:28:50.231]I went ahead and I plugged in,
[00:28:52.714]sorry this cuts off over here on the left,
[00:28:55.670]but I went ahead and spread my coverage out,
[00:28:58.420]so I started off up here with the,
[00:29:02.311]if you go up here, the 15%, that's January,
[00:29:05.810]February coverage at 15%.
[00:29:08.084]Now because I insured January, February,
[00:29:11.200]I can't insure February, March,
[00:29:12.670]so that's not available to me,
[00:29:14.300]but I can got to March, April,
[00:29:16.730]so I just did 15% in the first two months,
[00:29:19.080]20% in months three and four.
[00:29:21.719]20% the next two months, so four and five,
[00:29:25.255]or five and six, sorry.
[00:29:26.869]And then when I get into July and August,
[00:29:30.060]I did 15% and September, October 15%,
[00:29:33.525]and November, December 15%.
[00:29:35.350]So I spread it out throughout the year.
[00:29:37.170]You don't have to do that,
[00:29:38.830]but keep in mind you're gonna have to pick at least
[00:29:40.610]two different intervals to put the coverage in.
[00:29:42.860]'Cause the most you can put in any one interval is 60%.
[00:29:46.489]So with those percentages,
[00:29:48.457]that total dollar amount of coverage
[00:29:50.950]that I had down here at 14,285,
[00:29:53.380]is spread out anywhere from 2,143 on the 15% intervals,
[00:29:58.730]and 2,857 on the 20% intervals,
[00:30:01.436]so that tells me the protection I have in each interval.
[00:30:04.603]The premium rate is determined by those historical indicis,
[00:30:08.469]so for really volatile periods like November, December,
[00:30:12.660]where we don't get a lot of precip,
[00:30:14.460]on a percentage basis it's actually fairly volatile,
[00:30:17.209]so the premium rate is pretty high,
[00:30:19.470]about 32.5% of what you have coverage on.
[00:30:22.158]So that 2,143, has a premium attached to it of $697.
[00:30:28.802]For the months that you have more precip,
[00:30:31.341]say, let's see, we have May, June coverage here,
[00:30:35.864]it's quite a bit lower, it's only 13.4%.
[00:30:38.750]So that can vary quite a bit
[00:30:41.086]in terms of the premium rate that they actually charge you.
[00:30:43.330]But the bottom line on this one is the total premium comes
[00:30:46.700]out to $2860 or about $4.47 an acre.
[00:30:51.551]Now it is subsidized by the government,
[00:30:53.860]so you see the premium subsidy,
[00:30:55.570]and then down here in the bottom line for the producer,
[00:30:58.050]it's $2.19 an acre, or just under $1400 for this coverage.
[00:31:03.105]I put in the 2017 year, and at the time I had this,
[00:31:08.610]the last period hadn't been determined yet,
[00:31:11.177]but for the coverage I had,
[00:31:13.210]I hadn't collected any indemnity on this particular example,
[00:31:16.080]'cause every month or every period that I ensured
[00:31:19.160]was at least 90% of normal.
[00:31:21.420]Up here at the top, the second line,
[00:31:23.860]you see that it was only at 80%,
[00:31:25.630]but I did not attach insurance
[00:31:27.747]to that February, March interval,
[00:31:29.450]so I didn't get any indemnity from it.
[00:31:32.410]So in particular this one hasn't paid off anything yet,
[00:31:35.180]for that calendar year, and it cost me $1400 to do it.
[00:31:39.159]But of course that's not what happens every year,
[00:31:41.910]as a matter of fact that's fairly uncommon.
[00:31:43.720]And when this particular tool you can pull up
[00:31:47.160]historical indices going all the way back
[00:31:49.440]to 1948 if you want, this is just the last 20 years.
[00:31:52.576]And of course the top line of that
[00:31:56.930]is what happened in 2017, but we could go through here,
[00:32:01.370]and we could see all kinds of different numbers popping out
[00:32:04.190]like 50% of normal all the way up
[00:32:05.960]to things like 383% of normal.
[00:32:08.412]So you see quite a bit of volatility throughout history.
[00:32:10.959]As a producer your most interested probably
[00:32:14.380]in how it would of performed dollar-wise,
[00:32:16.270]so you can also pull this up in terms
[00:32:18.960]of indemnities that are paid out.
[00:32:21.278]Now you can ignore the columns of zeroes,
[00:32:23.560]'cause those are the columns that
[00:32:25.677]I did not attach any insurance to.
[00:32:28.075]But the other columns you can see
[00:32:30.140]where they paid out a little bit over long periods of time,
[00:32:33.730]like we have here in the last column.
[00:32:35.560]Some of 'em are a little more interspersed.
[00:32:37.150]Like we have here in September, October, and so on,
[00:32:40.430]but you can see how that particular insurance
[00:32:42.730]that I plugged into the tool would have paid out over time.
[00:32:46.399]So some people always ask, well what went on here?
[00:32:50.120]Well if you go across any of these lines here,
[00:32:52.945]there's very few, matter of fact, there's none,
[00:32:55.790]until you hit 2017, where it didn't pay out somethin'.
[00:32:59.213]So I'm gonna ignore 2017 for now,
[00:33:01.620]just because we don't have the final data in here
[00:33:04.830]for this last interval, but I'm just gonna look at
[00:33:07.970]the 20 years from 2016 on back to 1997.
[00:33:12.900]And this is how those indemnities woulda worked out
[00:33:15.130]for that particular policy I put in place.
[00:33:17.690]And you can see there's no zeroes in there,
[00:33:19.390]we always got something back.
[00:33:21.530]Our premium was that 1399 that we assumed.
[00:33:24.890]If you average these over 20 years,
[00:33:26.730]the average indemnity was 2400 bucks.
[00:33:29.298]Which means the average return that
[00:33:31.790]we had on this was right at $1000.
[00:33:35.320]So if you look at that in terms of dollars invested,
[00:33:38.060]the $1400 invested, $1000 back,
[00:33:40.560]that's about a 72% return on that investment.
[00:33:43.874]And a lot of producers are interested
[00:33:46.600]in how many years did my indemnity
[00:33:49.210]pay all of my premium for you.
[00:33:51.075]In this case there's only six years
[00:33:53.390]where your indemnity isn't at least $1399.
[00:33:57.237]So 14 outta the 20 years your indemnity
[00:34:00.580]covered your entire premium.
[00:34:02.770]This is not unlike a lot of different
[00:34:05.220]examples that a person could plug in.
[00:34:07.280]And again, you can go there and find your grid,
[00:34:10.310]put in different coverage levels,
[00:34:12.010]and pull that data out yourself and take a look at it.
[00:34:15.525]So the other program is a little newer.
[00:34:18.019]The Annual Forage Insurance Program is a little newer.
[00:34:21.270]Pasture, Rangeland, and Forage
[00:34:22.670]understand is for perennial forages, okay?
[00:34:25.940]The Annual Forage Program is for things you
[00:34:28.330]plant annually for forage purposes, okay?
[00:34:31.168]Came out in 2014, so 14 and 15 when it was first available,
[00:34:36.331]and it's just in the middle of the country here.
[00:34:39.130]So the Dakota's, Nebraska, Kansas, Oklahoma, and Texas,
[00:34:41.904]were the original six states,
[00:34:44.010]and they've since added Colorado and New Mexico
[00:34:45.880]in the last couple years to expand it to eight states now.
[00:34:51.290]But it's based off of that same index,
[00:34:53.320]but it's for annually planted forages.
[00:34:56.240]So annual crops planted for use as livestock feed or fodder.
[00:34:59.392]It includes grazing purposes, hay,
[00:35:03.410]you could hay it and graze it,
[00:35:06.221]or graze it and hay it, sorry.
[00:35:08.500]And then you can also graze it and harvest it for grain.
[00:35:11.510]You can green chop it.
[00:35:13.390]You can graze it and then green chop it.
[00:35:15.040]You can harvest it for silage.
[00:35:17.410]All of those qualify as far as
[00:35:19.900]being eligible for this product,
[00:35:21.950]with the idea that you're planting an Annual Forage.
[00:35:24.550]For use for livestock feed.
[00:35:28.086]The signup deadlines a little different.
[00:35:29.967]This runs basically midyear to midyear.
[00:35:31.260]So the signup deadline is July 15th for this product.
[00:35:34.274]There is a CAT coverage level for it.
[00:35:37.413]I'll show you a little example of that at the tail end.
[00:35:41.664]That's a little more difficult to make work
[00:35:43.900]and of course because it's a CAT coverage
[00:35:46.520]where you just pay the set fee no matter how many acres.
[00:35:49.280]Of course that becomes more appealing
[00:35:50.800]if you have a lot of acres,
[00:35:51.940]which is maybe not the case for
[00:35:54.260]a lot of people with Annual Forages.
[00:35:56.450]It runs just like PRF,
[00:35:57.760]in terms of the two month rainfall indexes,
[00:36:00.130]up to 90% coverage, the CAT coverage is only 65% of
[00:36:04.810]normal rainfall is all you can ensure there.
[00:36:08.575]There's four growing seasons for
[00:36:10.660]this annually planted forage,
[00:36:12.030]tied to when you actually plant the forage.
[00:36:14.950]It does cover the full calendar year,
[00:36:17.540]so growing season number one up here at the top,
[00:36:20.460]would go from July 16th to October 15th,
[00:36:23.410]so a three month period,
[00:36:25.000]that you would be planting the forage,
[00:36:26.680]and then the precipitation is insured
[00:36:28.400]from September to March 31st.
[00:36:31.391]And then it picks up from there,
[00:36:33.310]so the next three months is growing season two,
[00:36:35.670]precipitation would run from December one through June 30th,
[00:36:39.280]and then growing season three picks up the next three months
[00:36:41.840]mid January to mid April.
[00:36:43.528]Precipitation would be March one to September 30th,
[00:36:47.210]and then the last one is those last three months
[00:36:49.780]to cover from mid April to mid July.
[00:36:52.070]Growing season from June one to November 30th.
[00:36:55.440]So depending on when you're planning on planting,
[00:36:57.863]the forage would determine which growing season
[00:37:00.970]you'd put your acres in.
[00:37:02.560]But you have to sign up for any of these that you want,
[00:37:05.630]you have to sign up by July 15th.
[00:37:07.260]Now of course you wouldn't know necessarily
[00:37:09.110]by July 15th the exact acres you'll wanna put in it,
[00:37:12.780]but by July 15th you need to know that you want coverage
[00:37:15.580]over say March one through September 30th.
[00:37:18.710]Precips if you're here in growing season number three,
[00:37:21.650]you need to know that you want coverage there,
[00:37:23.660]you need to select the intervals you wanna cover,
[00:37:25.510]the percentage of value you wanna put in each interval,
[00:37:27.889]and the percentage of the precipitation
[00:37:30.024]you wanna cover there also.
[00:37:31.970]And then you report your acreage
[00:37:33.410]when you actually get it planted.
[00:37:38.100]So let's look at a quick example of that
[00:37:39.960]with growing season number one,
[00:37:41.689]so we're assuming that you're gonna plant in late summer,
[00:37:45.330]early fall, so between mid July and mid October,
[00:37:49.200]it'll cover precip from September one to March one,
[00:37:52.300]we'll stick in our same grid in Buffalo County, Nebraska.
[00:37:55.138]For the Annual Forage Insurance,
[00:37:57.310]you can see we got almost $200 worth of coverage here,
[00:38:00.610]that you could put on it as a base value.
[00:38:02.669]If you adjust that between 60% and 150% that we see here,
[00:38:07.183]pretty big range, all the way from basically 120
[00:38:10.490]up to $300 per acre that you can attach to it,
[00:38:13.537]in Buffalo County.
[00:38:16.045]Coverage is locked in at 45%, nothing you can do about that.
[00:38:19.990]So if you select CAT coverage,
[00:38:21.840]you're pretty much locked in at about 90 bucks an acre
[00:38:23.920]that you can put on that,
[00:38:25.130]and again, that's at 65% of normal precip.
[00:38:28.030]The other thing on CAT is the entire
[00:38:32.270]full months of precip.
[00:38:35.540]So in this case, if we put CAT coverage on this,
[00:38:38.480]September one through March 31st,
[00:38:40.650]would be treated as a single interval,
[00:38:43.220]and that single interval would have to fall below 65%
[00:38:46.570]rainfall before you would capture an indemnity.
[00:38:50.230]So it's one where it really is
[00:38:52.800]catastrophic disaster type of thing,
[00:38:55.110]where you really have to have a
[00:38:57.121]prolonged dry period for it to work.
[00:38:59.670]The other thing on this one is this is kept at 45%
[00:39:02.350]in terms of the max that you could put on
[00:39:04.880]for a particular interval.
[00:39:08.620]So it's a little bit more restrictive
[00:39:11.360]than the Pasture, Rangeland, and Forage.
[00:39:14.149]That tool, it's a little bit older tool that they have,
[00:39:16.820]but it still does the same thing,
[00:39:18.470]so I'll blow this up a little bit, so we could see at it.
[00:39:21.330]I selected growing season number one,
[00:39:23.430]I'm gonna go 90% on the coverage level again,
[00:39:26.342]100% productivity,
[00:39:28.130]I am insuring a full interest of mine, 100%,
[00:39:32.080]and for simplicity on the actual acres,
[00:39:34.640]I just used 100 acres here so
[00:39:36.120]we could do the math really easy.
[00:39:37.811]On the idea that this is a crop field,
[00:39:40.647]not a big old pasture.
[00:39:42.626]So that county based value was the 199.86,
[00:39:47.222]90% of that would be 179.87
[00:39:49.408]for the dollar amount of protection.
[00:39:52.257]100 acres, so that would come out to about,
[00:39:54.890]just under 18 grand total in protection.
[00:39:57.319]Subsidy level, 'cause I'm at the 90%,
[00:39:59.750]precipitation is still at 51%.
[00:40:03.225]So when I plug this in again, I spread it out,
[00:40:06.580]but the max you could put in is 45% for any interval.
[00:40:09.750]So our precipitation starts in September that we can insure,
[00:40:15.150]so I went ahead and went with the first period,
[00:40:17.620]and put 40% coverage.
[00:40:18.960]Which equates to just under $7200 in protection.
[00:40:22.587]And then I spread 30% out between
[00:40:24.980]the next two that are available.
[00:40:26.310]So November, December, and January, February.
[00:40:28.808]Now we're going through the winter months here,
[00:40:31.470]so these are our premium rates
[00:40:34.070]are actually pretty high here,
[00:40:35.652]all up in the 20's, with the exception of this November,
[00:40:37.920]December, which we saw before is up over 30%
[00:40:40.997]on the premium side.
[00:40:42.950]'Cause November, December is actually pretty light precip
[00:40:45.520]so there's actually quite a bit of volatility there.
[00:40:47.740]Bottom line though is, is in total premium,
[00:40:50.671]we're up about $4400.
[00:40:53.540]The government picks up most of that for us,
[00:40:55.440]so the producer would pay 2176.
[00:40:59.440]Which for 100 acres is about 21 bucks an acre,
[00:41:01.850]22 bucks an acre.
[00:41:04.790]Now I put in 2017 for an example year here,
[00:41:07.925]so this coverage actually is running from September of 2016
[00:41:12.855]through February I guess,
[00:41:14.700]where I have the coverage, of 2017.
[00:41:16.950]So it's all been determined already.
[00:41:19.007]And in this particular case we had a very dry
[00:41:22.240]September, October of 2016, only 35% of normal.
[00:41:25.868]So I got a gap there, right?
[00:41:27.930]I had 90% coverage, so I had about 55% gap to cover.
[00:41:34.040]And so that 55% of the actual protection over here
[00:41:37.560]at 7,195 equates to an indemnity of 4,381.
[00:41:44.960]And that more than cover the premium that I paid, of 2,176.
[00:41:50.240]Almost covers the exact premium for the whole product.
[00:41:53.220]But of course the government subsidized over half of that,
[00:41:56.310]so I come out ahead in this deal.
[00:41:58.546]Same thing, we can look at historical numbers.
[00:42:01.414]And this is how those grids woulda worked out over 20 years
[00:42:05.060]in terms of the precip index, in terms of dollars,
[00:42:08.860]this is the way that it looks,
[00:42:10.500]and so we can kinda see some of these winter periods,
[00:42:13.663]see some pretty big numbers in there,
[00:42:15.920]'cause we had pretty big coverage,
[00:42:17.910]almost $180 worth of protection per acre on 100 acres.
[00:42:22.070]So that's quite a bit of dollars out there, 18,000 total.
[00:42:26.032]But again, if we look across all these rows here,
[00:42:29.552]very seldom do we go a year where we don't have
[00:42:32.336]at least something kickin' in, okay?
[00:42:35.530]And so in this case, this is what that looks like,
[00:42:39.292]if there's none, no time in the last 20 years,
[00:42:43.100]where it hadn't paid some kind of indemnity.
[00:42:45.424]Our premium is quite a bit higher on this one though,
[00:42:48.210]it's $2100 so there's certainly some years in here
[00:42:51.120]where it's not covering our entire premium.
[00:42:53.980]But if we do the math on it,
[00:42:55.807]we end up for that $2100,
[00:42:58.810]we end up with an average indemnity
[00:43:02.050]coming out of about $3600.
[00:43:04.260]So on an average basis, we're clearin' about $14 an acre.
[00:43:08.860]If you look at it in terms of paying your premium,
[00:43:11.800]15 out of the 20 years your indemnity covers
[00:43:14.070]all or more of your premium.
[00:43:16.860]And you can look at it on net return basis, its about 66%.
[00:43:20.810]So the $14 return on a $21 investment,
[00:43:24.645]works out to about a 66% return.
[00:43:28.141]Again, this is in index product,
[00:43:30.310]so you'll see these types of numbers poppin' out,
[00:43:32.660]on just about anything that you look at,
[00:43:34.160]if you go back 20, 30 years worth of data,
[00:43:36.669]you'll get very similar numbers.
[00:43:39.274]So just real quick I'll do a growing season number three,
[00:43:43.310]all this does is move you to different months.
[00:43:45.380]Everything else remains the same dollar-wise.
[00:43:47.480]But now I'm going precipitation
[00:43:50.050]from March one to September 30th,
[00:43:52.280]and I'll only put this up here because
[00:43:53.940]that of course is gonna go through
[00:43:55.230]the spring and early summer,
[00:43:56.510]where we have more precip and it's cheaper insurance,
[00:43:59.621]because of that.
[00:44:01.145]So in this particular case we see a premium, if you will,
[00:44:05.010]remember before we are at $2100 for the producer.
[00:44:07.590]Here we're only at $1400, quite a bit cheaper,
[00:44:11.722]because we're ensuring months like in May, June,
[00:44:15.850]where we have a pretty cheap premium rate.
[00:44:18.455]Because we usually get quite a bit of precip there.
[00:44:22.036]But in this case again, I put in 2017,
[00:44:25.020]it hasn't determined the last one,
[00:44:27.010]but I didn't have insurance there.
[00:44:29.200]But in this case it hasn't paid out any indemnity,
[00:44:31.410]as we get through 2017.
[00:44:33.430]So I'm stuck with this premium of $1429
[00:44:36.140]without getting anything back.
[00:44:37.890]And if you look at this one, you know,
[00:44:39.947]it has similar indexes in terms of how it's spread out,
[00:44:43.469]but one of the things you'll notice on here,
[00:44:46.040]is that there are some lines where
[00:44:48.470]you actually don't get any indemnity back.
[00:44:51.640]So for example, our 2011 and 10 years here,
[00:44:55.765]we paid just premium,
[00:44:58.290]we got no indemnity back at all for those years.
[00:45:01.350]So this one here is a little bit more volatile in that sense
[00:45:04.010]that there are a few more years that you don't
[00:45:06.330]get anything back and so on.
[00:45:08.452]But we do still come out ahead because of the subsidy.
[00:45:12.451]So overall, our premiums only $14 an acre here,
[00:45:16.900]our average indemnity,
[00:45:18.970]if you average it out over all those years,
[00:45:21.300]it comes out to about $22, so we clear close to $8 an acre.
[00:45:26.540]That's about a 54% return on our investment.
[00:45:29.752]12 out of the 20 years the indemnity covers the premium.
[00:45:34.640]So no quite as lucrative as we saw in the other one,
[00:45:37.267]but still because of the subsidy,
[00:45:39.350]you generally are gonna come out ahead in these,
[00:45:41.000]if you insure for enough years.
[00:45:46.309]One more example with say you're planting in the spring,
[00:45:52.000]April through July, you're comin' in
[00:45:53.240]with the Sudan or a millet,
[00:45:55.400]so you're covering June through November.
[00:45:57.623]This one, just to relate it to the other one,
[00:46:01.070]it's kinda, a little bit in between,
[00:46:03.240]premiums a little bit higher than
[00:46:05.090]the example we just looked at,
[00:46:07.410]because we do get into the fall period.
[00:46:09.655]Mainly October and November,
[00:46:13.750]where we have a fairly significant premium attached to it.
[00:46:17.109]But $1500 in premium here for the producer.
[00:46:20.280]In this case for 2017, it woulda netted us $823 in indemnity
[00:46:26.740]so we'd still be $763 short in paying that indemnity.
[00:46:31.033]And we'd have to write a check for that amount.
[00:46:33.480]Again, these are the way the indexes are dispersed.
[00:46:37.700]The ones in the box are the ones that are below 90%,
[00:46:40.888]but this is probably what we're most interested in
[00:46:43.550]which is how that indemnity actually works out over time.
[00:46:46.870]Again, you end up with some years here,
[00:46:49.440]because so much of this in the summer.
[00:46:51.830]You end up with some years where
[00:46:54.167]you don't get anything back.
[00:46:56.375]But it's still a pretty good deal in that
[00:46:58.540]you have a $15, or about $16 an acre investment,
[00:47:03.350]for about $29 an acre an average return
[00:47:05.561]which nets out about $13 an acre over the long haul.
[00:47:09.415]That's a pretty good return of 81% on that investment.
[00:47:13.350]13 outta 20 years indemnity,
[00:47:15.016]pays your premium for you, at least.
[00:47:18.963]So those are some examples with the typical by up coverage
[00:47:23.580]of Annual Forage and I mentioned this CAT coverage,
[00:47:26.190]so I wanted to show you one example of that.
[00:47:28.364]For this particular one it's a $300 fee per county.
[00:47:32.888]So no matter how many acres,
[00:47:34.770]that's your flat fee, that's all you pay.
[00:47:37.070]If you look up here it gives you a subsidy or a premium
[00:47:41.213]but it's all subsidized so your
[00:47:43.070]producer premiums always zero on this one.
[00:47:45.909]So you don't pay anything on that,
[00:47:47.970]but it's not covering very much, right?
[00:47:49.640]It's only covering 45% of your value.
[00:47:52.086]And it's only covering 65% of precipitation.
[00:47:56.690]So your coverage value is down to $58.46 per acre,
[00:47:59.741]in terms of the dollar amount of protection on this.
[00:48:03.699]So, but it's 100% subsidized with the exception
[00:48:07.172]of that $300 fee that you have to pay to buy into it.
[00:48:10.863]So how does this one work out?
[00:48:13.490]Again, for the same grid, I just put that coverage in place,
[00:48:16.910]and just saw how it worked out,
[00:48:18.030]going all the way back for 20 years.
[00:48:19.970]So for 20 years, there's only five of those 20 years
[00:48:22.980]that you actually get an indemnity,
[00:48:24.580]and this is what it would have equated to on 100 acres.
[00:48:27.805]And so if you add all of that up
[00:48:30.276]it's about $6582 in indemnities.
[00:48:33.670]If you take the $300 a year times 20 years,
[00:48:37.145]you put in $6000 worth of premium,
[00:48:39.836]so this is one where you're not
[00:48:41.958]gonna get rich off of it obviously,
[00:48:44.270]and it's gonna pay you in those extremely dry years,
[00:48:46.830]like we saw in 2002 and three, and again in 2012.
[00:48:50.570]And this particular one also paid off
[00:48:53.300]in 16 and 17 for this grid.
[00:48:55.349]But this CAT coverage I really only encourage that
[00:48:59.230]if you have a lot of acres,
[00:49:00.810]because the amount of acres doesn't really matter,
[00:49:02.960]you pay the $300 fee no matter how many acres you have.
[00:49:06.160]And keep in mind that it's only gonna pay you
[00:49:08.050]when it's extremely dry for a long period of time.
[00:49:12.637]So in summary, the Annual Forage provides some
[00:49:18.770]protection against loss, for lack of precip.
[00:49:22.500]It also works financially for you over the long haul
[00:49:25.490]because we have these subsidies in place.
[00:49:27.909]If you're at the highest level, 90% coverage,
[00:49:30.450]your subsidy is 51%.
[00:49:32.420]If you drop down, of course it's less likely
[00:49:34.840]that you get paid 'cause it's less likely that the
[00:49:37.240]precipitation will fall that low,
[00:49:39.417]but it's subsidized a little more heavily at 59 and 55%.
[00:49:43.911]For those lower coverage levels.
[00:49:46.585]But you can play with that all online.
[00:49:49.230]Using the decision support tool, same thing with the PRF,
[00:49:52.370]these same subsidies work for PRF.
[00:49:54.430]The Pasture, Rangeland, and Forage,
[00:49:56.310]for the perennial grasses also.
[00:49:58.755]You wanna find the one that best fits your situation,
[00:50:02.080]and your region, for Annual Forage,
[00:50:04.776]the signup deadline is July 15th.
[00:50:07.090]It can be a challenge 'cause you've gotta plan ahead
[00:50:09.960]for growing seasons two, three, and four.
[00:50:12.090]For the Pasture, Rangeland, and Forage,
[00:50:15.100]remember signup deadline is November 15th,
[00:50:17.040]and you're signing up for the next calendar year.
[00:50:19.770]So both of these products,
[00:50:21.220]you have to plan ahead a little bit for.
[00:50:23.273]Take the time to go online,
[00:50:25.157]now for Annual Forage in particular,
[00:50:27.766]in the spring that's a good time to go online
[00:50:30.190]and take a look at what type of coverage
[00:50:32.240]you can put in place for next year.
[00:50:33.955]If you're interested in that,
[00:50:36.230]you need to go ahead and get signed up by July 15th.
[00:50:38.470]If you don't plant the acres,
[00:50:39.620]you're not gonna pay a premium.
[00:50:40.800]You're at zero times whatever is still zero.
[00:50:43.851]So if you think you wanna get it into place, get it,
[00:50:46.240]get talking to your crop insurance agent,
[00:50:48.380]take a look at the tool online,
[00:50:50.190]decide where you want the coverage and get that in place.
[00:50:52.730]And then when you go plant the acres,
[00:50:54.120]you report the acres, and you'll have the coverage in place.
[00:50:57.450]So take some time to run some scenarios for your operation
[00:51:00.490]see how it might fit if you're interested in it.
[00:51:02.409]But again, this is one tool out there available,
[00:51:05.720]just to control precipitation risk.
[00:51:08.168]The idea is that the precipitation amount you get
[00:51:11.405]will influence the forage you get,
[00:51:13.910]and the forage variability is gonna influence
[00:51:17.160]your production for your livestock in particular,
[00:51:19.530]'cause this is intended for use as a livestock feed.
[00:51:24.156]So once again I'm in the main department here
[00:51:29.460]at the University of Nebraska, Lincoln,
[00:51:31.130]in Agricultural Economics,
[00:51:32.870]I'm also a farm and ranch management specialist,
[00:51:35.010]so you see me on some extension materials.
[00:51:38.610]Feel free to contact me if you have
[00:51:40.843]questions on using this product,
[00:51:42.460]especially the Annual Forage one,
[00:51:43.770]'cause that ones fairly new.
[00:51:45.510]Pasture, Rangeland, and Forage is a little more
[00:51:47.740]ingrained in Nebraska culture
[00:51:50.270]as far as it being around a while.
[00:51:52.150]And again that tool that I was using
[00:51:53.830]is available on the rma.usda.gov website.
[00:51:57.647]I encourage you to go there
[00:51:59.140]and take a look at your specific situation
[00:52:01.293]and see if you can find something that works for you
[00:52:03.952]and that's by far the best advice I can give you.
[00:52:07.154]I've been doing on the Pasture, Rangeland, and Forage
[00:52:10.750]for over a decade now, and I can tell you that the
[00:52:13.131]producers that I've educated that have come back to me,
[00:52:16.980]and been most satisfied with using that product,
[00:52:19.960]have done exactly that.
[00:52:21.400]They've gone on there and they've taken a look at
[00:52:23.100]how it actually fits their operation,
[00:52:24.667]times they could use the money,
[00:52:26.781]those dry years, in particular like we saw in 2012,
[00:52:30.220]and back in 2002,
[00:52:32.900]where they really could have used the dollars,
[00:52:35.390]how would this have worked out for them,
[00:52:37.290]and then surprisingly there's some other years
[00:52:40.185]that fit in there too where the precipitation
[00:52:43.110]didn't come at the right time,
[00:52:44.390]and this particular product could fill in some gaps for 'em
[00:52:47.640]in terms of buying feed
[00:52:49.120]or just some income gaps that they had,
[00:52:51.140]where they had some weight loss in the calves, et cetera.
[00:52:54.210]So that's the number one thing I can say,
[00:52:55.834]if you're interested in it, go to their website,
[00:52:58.130]check it out, get ahold of your crop insurance agent,
[00:53:01.540]and see what you have to do to get it in place,
[00:53:03.750]and just get your ducks in a row
[00:53:05.657]so that if you do wanna purchase it,
[00:53:07.310]that you are prepared to do so.
[00:53:08.610]So with that I will go ahead and close,
[00:53:10.400]and I thank you for watching this,
[00:53:12.430]and once again let me know if you have any questions.

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Managing Precipitation Risk for Pasture and Annual Forage by Jay Parsons

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