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Using Pasture, Rangeland, Forage (PRF) Insurance to Manage Your Risks

Using Pasture, Rangeland, Forage (PRF) Insurance to Manage Your Risks. Jeffrey E. Tranel, Colorado State University National Risk Management Education Conference Pre-Conference Seminar 2013 April 2 . Managing Risks With PRF Insurance. PRF Insurance.

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Using Pasture, Rangeland, Forage (PRF) Insurance to Manage Your Risks

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  1. Using Pasture, Rangeland, Forage (PRF) Insurance to Manage Your Risks Jeffrey E. Tranel, Colorado State University National Risk Management Education Conference Pre-Conference Seminar 2013 April 2

  2. Managing Risks WithPRF Insurance

  3. PRF Insurance Option for forage and livestock producers to manage potential production losses.

  4. PRF Insurance Option for forage and livestock producers to manage potential production losses. Group risk plan.

  5. PRF Insurance Option for forage and livestock producers to manage potential production losses. Group risk plan. • The insurance coverage is single peril. • RI = precipitation. • VI = vegetative greenness.

  6. PRF Insurance Option for forage and livestock producers to manage potential production losses. Group risk plan. • The insurance coverage is single peril. • Coverage is based on the long-term historical average for the same area of land for the same period of time, not actual production of individual farms or ranches.

  7. PRF Insurance Option for forage and livestock producers to manage potential production losses. Group risk plan. • The insurance coverage is multi-peril, losses caused by natural occurrences. • Coverage is based on the long-term historical average for the same area of land for the same period of time, not actual production of individual farms or ranches. Can be used: • As a standalone product. • In combination with other risk management strategies or insurance products.

  8. PRF Insurance Option for forage and livestock producers to manage potential production losses. Group risk plan. • The insurance coverage is multi-peril, losses caused by natural occurrences. • Coverage is based on the long-term historical average for the same area of land for the same period of time, not actual production of individual farms or ranches. Can be used as a standalone product or in combination with other risk management strategies or insurance products. Acreage enrolled in other USDA programs (CRP) is not eligible for PRF insurance.

  9. PRF Insurance – Basic Terms Expected Grid Index • Based on data provided by appropriate data sources. • Determined by Federal Crop Insurance Corporation. • Expressed as a percentage, such that the mean is 100. Final Grid Index • The final grid index is a proxy (indicator variable) for pasture, range, and hay production for a specific grid. • Based on the current index for each grid ID and index interval during the crop year. • Determined by Federal Crop Insurance Corporation • Expressed as a percentage • Exceeds 100 = index for the grid has an above average value • Less than 100 = index for the grid has a below average value • Calculated soon after the close of each index interval Trigger Grid Index • Expected Grid Index x Coverage Level

  10. Index Intervals Producers must select the appropriate time frames or index intervals to apply for PRF insurance coverage. It's important to select intervals when forage/pasture production is critical for your operation.

  11. Important Dates Insurance Period • Sale Closing Date • Cancellation/Termination Date • Acreage Reporting Date Contract Change Date

  12. Rainfall Index or Vegetation Index Rainfall Index Vegetation Index

  13. Rainfall Index (RI-PRF) Allows insured forage and livestock producers to possibly obtain indemnities when a final index of precipitation for a grid (final grid index) falls below average precipitation patterns for the grid (trigger grid index). Uses data from NOAA Climate Prediction Center • Precipitation data reflect a smoothed result of nearby weather, radar, and satellite estimates to return a total interpolated value for the grid. The final grid index is a proxy (indicator variable) for pasture, range, and hay production for a specific grid.

  14. Rainfall Index Utilizes weather data collected and maintained by NOAA’s Climate Prediction Center. The index reflects how much precipitation is received relative to the long-term average for a specified area and timeframe.

  15. Vegetation Index Utilizes Normalized Difference Vegetation Index (NDVI) data from U.S. Geological Survey EROS Measurement of the density of photosynthetic biomass (greenness) on the ground.

  16. Vegetation Index (VI-PRF) Allows insured forage and livestock producers to possibly obtain indemnities when the final index of vegetation greenness for a grid (final grid index) falls below the insured’s trigger grid index.

  17. Grids Each grid segment is identified by a grid ID. RI and VI use different grid sizes, so the grid ID will be different depending on which plan is available.

  18. Grids Producers must also select a reference point on the grid that best represents the location of the grazinglands or haylands they want to insure. Property Line

  19. Grids Contiguous Acres • May be combined into a single grid, regardless of number of grids and/or counties. • May separate the acreage into separate Grids. • Insured using multiple Grid IDs • If acreage is in multiple counties, a new policy for each county must be written. Grid ID 67895

  20. Grids Non-contiguous acres within one Grid • Insured for one Grid Non-contiguous acres in different Grids Must use a point of reference for each separate, non-continuous insured acreage. Must insure the properties separately. Grid ID 67895

  21. Expected Index Values Historical data for each grid is used to determine the expected index value for either precipitation or vegetation greenness.

  22. Using Grid Indices Expected grid index is compared to the final grid index. Producers may receive an indemnity if the actual final index falls below the trigger grid index, which is adjusted based on thecoverage level. Expected Grid Index Coverage Level Actual Grid Index Actual result during the index interval was lower than expected, so an indemnity may be paid. Trigger Grid Index = 75 (100 x 75%) 100% 75% 44

  23. Finding Your Property & Grid • Display Checkboxes • To see the borders of counties and grid areas, select • Counties (blue outlines) • Grids (red outlines) • Labels (red numbers)

  24. Step 1: Select a Location • State • County • Grid ID (longitude and latitude that best represents the location of the acreage the producer wants to insure. A specific code is associated with each grid) • See the Grid Locator module to learn more about how to locate the specific grid ID numbers for your operation.

  25. Step 2: Select an Intended Use Grazing area of forage established on land suitable and intended for grazing livestock Haying established area of hay on land suitable and intended for haying

  26. Step 3: Select a Coverage Level • Percentage of the county base value selected for insurance coverage. • 90%, 85%, 80%, 75%, or 70% • Producers are required to insure all grids in a county at the same level.

  27. Step 4: Select a Productivity Factor • Reflects the operation’s forage productivity relative to the average forage productivity for the grid • Varies from 60% to 150% • 100% indicates the operation’s forage productivity is similar to the average forage productivity for the grid

  28. Step 5: Select an Insurable Interest • The operator’s share of forage production on the insured acreage • Owner shares are likely to be 100% • Producer’s share on a 50/50 crop share arrangement will be 50%

  29. Step 6: Enter the Number of Insured Acres That Qualify for Coverage • Insurable acres are determined by policy provisions • Uninsurable acres possess characteristics precluding grazing or hay production • Producer chooses the number of acres to be insured • All insurable acres do not have to be insured

  30. Step 7: Select the Sample Year for Insurance Coverage • Used for historical analysis. • Range of sample years. • RI = 1948 – 2012 • VI = 1989 – 2012

  31. Step 8: Enter Percent of Value to be Insured Per Index Interval • Select intervals to protect against production losses. • Intervals are periods of consecutive months. • RI = 2 consecutive months. • VI = 3 consecutive months. • Intervals cannot overlap. • There may be a minimum/maximum percentage insurable for a single interval. • The sum for all intervals must equal 100.

  32. RI – PRF, an example

  33. Drought of 2010? 2011! 2012! Drought of 2001? 2002! Moisture needed to grow grass.

  34. Comparison of Rainfall Index Values

  35. Vegetation Index

  36. Vegetation Index

  37. Comparison of Vegetation Index Values

  38. Cost Estimator – Quick Estimate

  39. Finding Information about PRF www.rma.usda.gov/policies/pasturerangeforage/ See a crop insurance agent.

  40. Thank You!

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