Unfortunately, no one can predict the weather, no matter how hard they try. That’s why programs such as the Pasture, Rangeland, Forage Rainfall Index (PRF-RI) exist.
According to the United States Department of Agriculture, pasture, rangeland, and forage covers approximately 55% of all U.S. land. Therefore, the PRF-RI insurance program was developed. PRF-RI is a single-peril program with the lack of precipitation as the only insurable cause of loss. It may be the perfect solution if you’re tired of keeping production and feeding records under traditional forage production coverage. It’s an excellent tool to have in your toolbox to protect your business with availability throughout the 48 contiguous states. With PRF-RI, you can elect to insure all or a portion of the total insurable acreage in the county.
How PRF Works
The Rainfall Index uses National Oceanic and Atmospheric Administration Climate Prediction Center (NOAA CPC) data. The index reflects how much precipitation is received relative to the long-term average for a specified area and timeframe. A grid system is utilized to determine the precipitation amounts, starting at 17 miles by 17 miles at the equator and about 12 miles by 17 miles in the Midwest. Coverage is based on the experience in a grid rather than individual farms. Because the grids are much smaller than actual counties, it can work to your advantage. The grid ID number, which corresponds with the location of the haying or grazing land, is determined by using the Risk Management Agency (RMA) website.
By choosing to insure your grazing or haying land under PRF-RI, you’re insuring the lack of precipitation in the grid. Daily data from NOAA interpolates precipitation to the grid. RMA compares the compiled data with the historical precipitation data for the same period. It’s important to note that this is not considered drought insurance. RMA does not use the drought monitor because it takes into account high temperatures and windy conditions, while PRF-RI is a single-peril program that only insures against less-than-expected rainfall. Therefore, you may be in an area where drought is declared, but that alone would not trigger an indemnity payment.
When you purchase PRF-RI you choose a coverage level from 70% to 90% in 5% increments. You also choose a productivity factor of 60% to 150% in 1% increments. Finally, you choose at least two two-month index intervals where precipitation is important to your financial success.
Index interval periods are two-month periods from January 1 to December 31. When choosing your minimum of two intervals, the intervals you choose cannot have overlapping dates. It’s important to carefully plan the index intervals you insure and how much you insure for each interval. You can review historical index tools on the RMA website for your grid, along with past production records to determine what works best for your operation.
For Example
Let’s look at a hypothetical situation. The coverage for PRF-RI is a dollar amount of protection per acre calculated by using the county base value, which is published in the county actuarial by crop type. The county base value multiplied by the coverage level elected by you (70% to 90%) and multiplied by the productivity factor elected by you (between 60% and 150%) gives you your dollar amount of protection.
The county base value for coverage in Barnes County, North Dakota is $27.20 for grazing and $226 for non-irrigated haying. If you choose haying coverage at the 90% level and a productivity factor of 130% your dollar amount of protection is: $226 x 90% x 130% = $264 per acre.
Your indemnity is based on the deviation from normal precipitation for each grid you have. Payment is automatically made if the final grid index is less than your trigger index. If the expected grid index is 110 and you chose the 90% level a final grid index published by FCIC that is below 99 would calculate as a payment to your operation. Using the Barnes County example above, if the final grid index data is determined to be 85, your payment would be $37/acre.
Remember, PRF-RI is an area plan, so it is possible to have low crop production or receive low precipitation amounts on the acreage insured within a grid and still not receive an indemnity payment under this plan. If you have questions about how PRF-RI would protect your operation, talk to your AgCountry insurance specialist soon. The sales closing date is December 1.
Rainfall is an integral part of growing crops. PRF-RI gives you coverage for less than anticipated rainfall, meaning you can breathe a little easier even if nature doesn’t listen to your wishes.
