Multiple peril crop insurance demonstrated its value for crop producers in a year like this past one. Now Nebraska farmers and ranchers who depend on pasture grazing and hay production have a relatively new insurance product that can help them if drought conditions persist next year.

Multiple peril crop insurance demonstrated its value for crop producers in a year like this past one. Now Nebraska farmers and ranchers who depend on pasture grazing and hay production have a relatively new insurance product that can help them if drought conditions persist next year.

This insurance product is called Pasture, Rangeland and Forage, or PRF, coverage. PRF coverage in Nebraska in 2013 will be based on a rainfall index described in greater detail below. Basically, if the rainfall index for the insured's locale falls below some guaranteed level, the insurance pays based on the extent of this shortfall. This type of coverage has been pilot tested around the U.S. for a few years now. USDA also runs a pilot program for PRF coverage using a vegetation index, measured as the "greenness" of a grid area as seen from satellites in space, but this index will be used in only in some western States in 2013.

Some features of PRF coverage will be familiar to producers who have used multiple peril crop insurance before. Just like crop insurance, it is backed by the Risk Management Agency, USDA, and sold through local insurance agents. Just like crop insurance, the premiums are subsidized at a significant level, with the federal government paying from 51 percent to 59 percent of the total premium for PRF coverage. Producers sign up before the season begins and pay their premiums later in the season.

However, PRF coverage is different from crop insurance in one very important aspect: its coverage is based on a rainfall index for a local area rather than an individual's production. A primary reason for using a rainfall index is that pasture production is seldom or never measured precisely like crop yields, so no yield history exists, and some other indicator must be used to measure the extent of any possible loss. Hence, rainfall is used as a proxy measure for grazing or hay output, since forage production should correlate closely with rainfall in haying and grazing systems.

PRF coverage in Nebraska for 2013 will use a rainfall index calculated by the National Oceanic and Atmospheric Administration. NOAA's Climate Prediction Center combines rain gauge, satellite, and radar information to develop rainfall maps and can compare current conditions to historic experience dating back to 1948.

PRF rainfall index coverage is based on rainfall over a grid area measuring 0.25 degrees in latitude and 0.25 degrees in longitude. In Nebraska, this results in an area about 13 miles from east to west, and about 17 miles from north to south. It is important to remember that coverage is based on the rainfall experience of the entire grid. It is not based on rainfall on individual farms or ranches or at a specific weather station in the general area.

Several choices are involved in selecting PRF coverage. The first decision involves which land to insure. Grazing land, hay land, or both may be insured, although producers can only insure land that is not planted annually. Overseeding into existing forage crops or pastures is permitted.

Producers are allowed to insure some but not all of their grazing or haying land if they wish. That is, they are not required to insure 100 percent of the insurable acres in a county for either haying or grazing land. Farm Service Agency maps can be used to determine acreage for the policies. Grassed waterways around row crop fields which are cut for grass hay may be designated as hay land and thus may be insured. Conservation Reserve Program land is not eligible for PRF coverage.

At sign-up, an insured plot of land is matched to its particular grid on Risk Management Agency maps, which can be found on RMA's website. If a producer has insured land which straddles a grid line, the land may be combined to be insured in just one of the grids, or it may be insured as separate units with the appropriate portion assigned to the separate grids. Non-contiguous land parcels in separate grids must be insured separately, in correspondence to the grid where each is located.

Producers must also indicate whether they will use the land for grazing or haying that year when they sign up for insurance. Any particular acre can only be insured for one use in that year; it cannot be insured for both haying and grazing in one season. However, land can be insured for grazing one year and for haying the next, so long as the insurance agent is notified and makes appropriate changes to the policy in the second year.

Another insurance component which must be selected is the coverage level. A "normal" year for the rainfall index is considered to have a value of 100 percent, and producers may select coverage levels ranging from 70 percent to 90 percent of this value, in five-percent increments. So a producer who selects the 90 percent coverage level will have insurance which begins to pay whenever the rainfall index falls below 90 percent of normal; the farther the index falls below 90 percent, the more the insurance pays.

The next coverage component to select is a protection factor which determines the value of the forage being insured. Each grid area is assigned a dollar value for grazing or haying production which reflects typical production in that area. Producers can then select a protection factor which scales the base value up or down, from 60 percent of the base up to 150 percent of the base value. For example, suppose the grazing base value for a particular grid is set at $20 per acre. Producers could thus select coverage as low as $14 per acre (60 percent of the base) or as high as $30 per acre (150 percent of the base). This feature is useful if the producer thinks their own productivity is higher or lower than average, or if they simply want a different dollar level of coverage.

Producers also must select the time periods for which the insurance applies. These time periods are called index intervals under the insurance policy, referring to the performance of the rainfall index during the time interval in question, and each index interval lasts two months. Producers must insure each parcel of land for at least two intervals during the season. For example, land could be insured over intervals of May to June and July to August. More than two index intervals can be insured if desired, so for example a producer could select coverage for April to May, June to July, and August to September.

Producers must then allocate the total dollar value of protection across the index intervals, or time periods, they have chosen to insure. For example, a producer insuring grazing land at $20 per acre for the entire season and using index intervals of May to June and July to August could allocate 60 percent to May to June and 40 percent to July to August. This means the May to June interval gets $12 per acre of the total coverage, while July to August gets $8 per acre.

A loss can occur in one index interval and be indemnified, even if a loss does not occur in another time period. The rainfall index is calculated for each index interval after that time period ends, and an indemnity payment is calculated and paid if a loss has occurred. Thus, multiple indemnity payments can be made during a season if rainfall continues to be short over multiple time periods.

The sales closing date in Nebraska to purchase PRF coverage for 2013 is November 15. If you are interested, contact your crop insurance agent soon for more information.

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