Pasture, Rangeland, and Forage (PRF) insurance is a tool for managing rainfall or drought risk. While individual producer experience varies, PRF has made substantial payouts during drought years. In 2023, producers paid an average premium of $5.11 per acre and received an average payout of $10.06 per acre. The deadline to sign up for PRF insurance for the 2025 calendar year with a crop insurance agent is December 1, 2024. Some producers may be concerned about the degree to which PRF will cover actual forage losses on their operation. This article summarizes these concerns and two approaches to considering them.
PRF Summary. PRF makes automatic payouts for a producer when precipitation is less than the historic average in their local area, or USDA-defined grid (approximately 17 by 13 miles). Producers using PRF must select which 2-month intervals throughout the year to insure and the relative importance (weight) of each interval. The basics of PRF insurance have been covered in previous newsletters; see the links below for more details. Producers need to work closely with an insurance agent to make several decisions, including coverage level, interval selection, and productivity factor.
Concern 1. PRF is a type of area insurance. PRF doesn’t cover what happens on an individual operation or field, instead it makes payouts when precipitation (rain or snow) during an interval in a producer’s grid is lower than the historic average (the exact point at which a payout is made will depend on what coverage level is selected). There are both benefits and drawbacks of PRF being area insurance, or not covering individual losses. The benefits include that no loss adjustment or production history is required. Measuring production or yields on pasture or for some forage types can be more difficult than for commodity crops. Drawbacks include that payouts might not be made when rainfall is low for an individual producer but higher for the grid. Likewise, payouts might be made when a producer has adequate moisture but the grid does not.
Concern 2. Not all precipitation in an interval (2-month period) has the same impact on yield. A producer may be concerned that the relative quantity of precipitation in a two-month period may not perfectly predict yield. While precipitation is highly correlated with yield, the timing of precipitation can influence forage yields. Concentrated rainfall may have a low impact on yields, while more spread out rainfall is typically more beneficial.
Concern 3. PRF is single peril, or only covers one type of loss. While low precipitation is strongly correlated with yield losses, other natural and weather-related factors may also matter. Excess rainfall can lead to yield losses or a decline in forage quality. Extreme heat could lead to forage losses as well.
Approach 1. Understand how relevant these concerns are for your operation. Not understanding these PRF characteristics and their implications for an individual operation could lead to disappointment or worse. If a producer is uncertain of whether to use PRF, a good first step is to understand what PRF does and doesn’t cover and assess how serious these potential limitations are. Detailed information is available online and insurance agents are a good resource. USDA has a decision support tool that provides information on grid-level historic precipitation and estimated payouts. These can be compared with individual rainfall or production records to analyze the degree to which (1) individual and area (grid) experience are different and (2) precipitation is related to yield or forage/pasture quality. Many agents offer other decision support tools and individualized analysis. Producers can use these resources to better understand how manageable these concerns are for their operation.
Approach 2. Take a long-term perspective. Even if PRF payouts aren’t always related to individual forage losses, many producers take a long-term perspective to forage risk management. In other words, producers don’t typically produce just enough forage to meet their needs and go to the market to purchase hay whenever pasture or hay production is insufficient for their needs. Instead, producers adjust hay stocks, cow numbers, and make other production decisions to manage long-term drought risk. From this perspective, in many cases, a producer may not need a payout immediately to purchase hay when precipitation is lower than the historic average. Instead, PRF payouts can be used to build a “cash inventory” or “PRF savings account”. These funds could be used to make investments that mitigate drought risk, cover family expenses, purchase hay during a drought, rebuild hay stocks, restock heifers quickly after a drought, etc. When taking this perspective, it is helpful to remember that the government covers at least half of the cost of the PRF premium. Over time, a producer should receive more in payouts than is paid in premiums. This is not guaranteed but is the typical or average experience.
Conclusion
PRF insurance is one of many tools that can be used to manage drought risk—over 5 million acres in Kansas are currently enrolled. PRF has some unique characteristics that are important for a producer to understand. In addition to providing payouts for forage replacement or hay purchase, PRF can contribute to long-term drought risk management.
Resources
https://public-rma.fpac.usda.gov/apps/PRF
https://www.rma.usda.gov/about-crop-insurance/frequently-asked-questions/pasture-rangeland-forage
https://agtodayksu.libsyn.com/1643-fsa-helping-farmersfarmers-owe-millions
https://agtodayksu.libsyn.com/1557-options-when-burning-landprf-insurance
This material is based upon work supported by USDA/NIFA under Award Number 2021-70027-34694.
Jenny Ifft, Flinchbaugh Agricultural Policy Chair – Kansas State Univ. Dept. of Agricultural Economics
jifft@ksu.edu
Tags: pastures range forage forage insurance