New Federal Rangeland Rainfall
Insurance Draws Much Interest
By Colleen Schreiber
SAN ANGELO – Insurance for rainfall or a lack of rainfall? That might sound a little too good to be true or even a bit far-fetched, but that's exactly what a new government pilot program is all about.
The government-subsidized pasture, rangeland and forage risk management pilot insurance program allows a landowner to insure native rangeland or a hayland to protect against losses during critical times of the year when rainfall is lacking.
"Rainfall is the last of the big variables affecting production that we haven't been able to address through some other process," Texas A&M Extension economist Dr. Jason Johnson points out. "This new program changes that.
About five years ago USDA's Risk Management Agency was given a charge to come up with a form of insurance for forage producers. Row crop insurance has been around for years, but there was no form of insurance for grazing lands per se other than the livestock feed assistance program and the NAP program (non insured ag production).
RMA put out a request for proposals, and a team from a Bryan-College Station Consulting firm, Grazingland Management Systems (GMS) made up of Wayne Hamilton, Richard Conner and the late Jerry Stuth submitted a proposal. Another Bryan-College Station Consulting firm, AgForce Inc., also participated.
"It's extremely difficult if not impossible to accurately measure production on rangeland," Wayne Hamilton notes. "It entails clipping and weighing grass, and on any kind of scale it is just about impossible to do, and there is a human factor involved with that method as well.
"We wanted to come up with some way of developing an index that would correlate to production without having to measure it."
And that is exactly what they did. The two indexes developed were the two that were accepted and are now being used in RMA's test pilot program. Both closely correlate to forage production, Hamilton says.
The rainfall index is based on National Oceanic and Atmospheric Administration (NOAA) data, and the vegetation index uses the Normalized Difference Vegetation Index (NDVI) satellite data from the U.S. Geological Survey Earth Resources Observation and Science data center. In simpler terms, the first uses rainfall data collected from NOAA 12-by-12 mile weather grids, and the latter is a measure of vegetation greenness from satellite images that correlates to forage condition and productive capacity.
The rainfall index insurance program is being pilot tested in 220 counties in Colorado, Idaho, Pennsylvania, South Carolina, North Dakota and Texas, while the vegetation index program is being pilot tested in 110 counties in Colorado, Oklahoma, Oregon, Pennsylvania, South Carolina and South Dakota.
Only grazingland and hayland that have established perennial crops are eligible for this program. Any forage crop that is annually planted is not eligible unless it is overseeded into existing perennial forage such as Coastal Bermuda.
Since the program was rolled out on August 8 there has been a frenzy of activity. Landowners are apparently signing up in droves.
"It really is a simple, logical program in that you're insuring a percentage of normal rainfall during two or more specified two-month periods," Johnson explains.
The GMS team used 58 years (1948-2005) of satellite and actual rainfall data collected by NOAA to come up with a baseline figure for "normal" rainfall during each two-month period for every one of NOAA's 12-by-12 mile grids in each of the eligible counties.
What makes the rainfall index program different from any others tried before is that the production year is divided into six two-month intervals. Interval I includes February and March; Interval II April and May; Interval III June and July, and so forth. Producers must choose at least two of the two-month periods, known as an index interval.
A producer would typically insure acreage for the interval that best fits when his production occurs or when he is at the greatest risk if he doesn't get precipitation, or he may decide it's worth it to insure part of the total acreage in all six intervals. Participants can even look back at historical indices for their particular grid or grids to help in making these decisions.
For the rainfall index program in Texas, not more than 50 percent or less than 10 percent of the acres to be insured may be entered in any one of the intervals selected, and the sum of the acres by interval cannot exceed the total insurable acres. Producers are not required to insure their entire acreage for the entire crop year, but rather may choose to insure only those periods when rainfall is most critical.
The premium and indemnity, if one is due, is based on a predetermined level, the individual level of protection, and the number of insured acres. The base level is a derivative from the USDA-FSA Grassland Reserve Program prices for grazing land and national Agricultural Statistics Service state hayland rates, U.S Geological Survey land cover estimates, as well as regional forage and hayland values.
In Archer County, Texas, for example, the county base value is $9.53 while in Brewster County it is $6.62. Thus a policyholder may choose to insure from 60 up to 150 percent of that county base value. The higher the percentage, the higher the premium.
Landowners are also asked to choose coverage from 70 to 90 percent of "normal" rainfall within their specified grid during at least two of the two-month intervals.
"If you select to insure at the 90 percent coverage level, then any insured two-month interval that received below 90 percent of normal rainfall for that period would receive an indemnity," Johnson explains.
The beauty of this program, and the reason it works so well, Johnson reiterates, is because the indemnity is not based on a definition of "normal" rainfall over an entire growing period. Rather, each two-month interval stands alone in determining whether or not an indemnity is due.
"We've all seen years where we had average rainfall for the entire year, but it all came in just a couple of large rainfall events. With this program you could get average rainfall for the whole year, but indemnity payments might still be triggered for those two-month intervals that did not receive their fair share," he explains.
"Say you get 15 inches in one of the two-month intervals, but you don't get any rainfall the following two months. In that scenario you would be entitled to a payment for insured acreage enrolled in the drouth-stricken interval," Johnson explains.
"If you select the 90 percent of normal rainfall coverage, you would collect a payment during any of the insured intervals receiving less than 90 percent of normal rainfall for the period," Johnson reiterates. "It's as simple as that.
"The only time you would owe your full premium is if you received rainfall that approached normal levels or exceeded the coverage level threshold during all of the intervals you chose to insure," he adds.
The other factor that makes the program work, Johnson says, is that every county is broken up into grids. Indemnities are paid based on insufficient rainfall within an individual grid in which the property lies rather than what was received on average for the entire county. So even if parts of a county are getting average rainfall, an indemnity may still be due to someone who has insured property within one of the county grids that did not receive its historical average.
To get started, a landowner first must determine the grid in which his land is located. The user-friendly website makes this process a relatively easy one.
"You actually pull up a topo map and then you can narrow your location down using aerial photos. You can pinpoint your house, your barn, etc.
"That location has a grid number, and everything — all your ratings and indexing — is based on that grid," Johnson explains.
Once you've determined your locale and the grid number, the next step is to go into the rainfall index decision tool. It's a matter of filling in the blanks. Information asked is insured crop type, such as grazing land or hay land, coverage level, productivity factor, share, insurable acres, and finally the sample year. Once all that information is plugged in, the handy calculator does the rest. It determines the total premium per acre as well as the indemnity per acre if one is due, based on the information plugged in.
Johnson has plugged in various scenarios for many different grids, and what he's found is that over the last 58 years, 75 to 83 percent of the time, a policyholder's indemnity was more than their policy premium.
"For all of the grids I have examined and back-tested, participation in this program for the 58 years (1948-2005) would have generated indemnity payments to the producer approximating about $1.80 for each $1 of premium the producer paid in," Johnson says.
"For many of the eligible counties in West Central Texas, the premium for hayland costs the producer anywhere from $16 to $28 an acre, depending on the level of protection they choose to purchase.
"For that amount of premium, you're buying a percentage of the $150 to $180 per acre base value for hayland," Johnson notes. "And the results have been similar to those for rangeland, about 75 percent of the historical 58-year timeframe, the policyholder collected more money than he owed. However, as the old saying goes, historical performance in no way guarantees future results. Rainfall totals and distribution during 2007 may conform or deviate substantially from historical levels."
The premiums, he reminds, are heavily subsidized by the federal government. The federal government subsidizes 55 to 64 percent of the premium cost, depending on the level of coverage chosen by the producer.
Any crop insurance agency that's eligible to sell federal crop insurance may enroll landowners and/or those who are leasing grazing land or hay fields. Enrollment, he insists, is easy and straightforward. Essentially the process only involves verification of insurable acres, eligibility and determining the grid in which the land should be enrolled.
"Unlike with a provisional row crop enrollment where you have to verify acreage, what you planted, when you planted, what actual yields you achieved, etc., this program is as simple as your name, social security, ownership or interest in that acreage, location and coverage selection chosen by the producer. No further site appraisals or adjustments will be needed to administer the program."
Johnson has already presented about 10 educational seminars on the new program, and he has 30 more scheduled over the next 40 days or so.
"Because most of these livestock guys have never dealt with crop insurance per se, they're generally a little skeptical about the program at first," he comments. "It sounds too good to be true, but for those who have attended some kind of educational seminar, most of them have been very receptive to the idea."
Johnson says the easiest way for producers to understand the program is to plug in various scenarios for their property using the decision support tools.
The pilot project will be used to tweak the program and to gauge producer interest.
"We have to have enough participation to give the programs a fair test," Hamilton notes. "It's being tested in six states from the Northwest to the Southeast, and we have it in the Carolinas as well, so geographically, the country is well represented."
Producers have until November 30 to enroll. The first two-month interval starts Feb 1, 2007.
"I would be amazed if producer participation didn't far exceed expectations," he comments.
The user-friendly Internet map locator tool and other decision aid tools may be accessed at http://prfri-rma-map.tamu.edu.
More detailed information is available at the RMA website, www.usda.gov/policies/pasturerangeforage.
Insurance Draws Much Interest
By Colleen Schreiber
SAN ANGELO – Insurance for rainfall or a lack of rainfall? That might sound a little too good to be true or even a bit far-fetched, but that's exactly what a new government pilot program is all about.
The government-subsidized pasture, rangeland and forage risk management pilot insurance program allows a landowner to insure native rangeland or a hayland to protect against losses during critical times of the year when rainfall is lacking.
"Rainfall is the last of the big variables affecting production that we haven't been able to address through some other process," Texas A&M Extension economist Dr. Jason Johnson points out. "This new program changes that.
About five years ago USDA's Risk Management Agency was given a charge to come up with a form of insurance for forage producers. Row crop insurance has been around for years, but there was no form of insurance for grazing lands per se other than the livestock feed assistance program and the NAP program (non insured ag production).
RMA put out a request for proposals, and a team from a Bryan-College Station Consulting firm, Grazingland Management Systems (GMS) made up of Wayne Hamilton, Richard Conner and the late Jerry Stuth submitted a proposal. Another Bryan-College Station Consulting firm, AgForce Inc., also participated.
"It's extremely difficult if not impossible to accurately measure production on rangeland," Wayne Hamilton notes. "It entails clipping and weighing grass, and on any kind of scale it is just about impossible to do, and there is a human factor involved with that method as well.
"We wanted to come up with some way of developing an index that would correlate to production without having to measure it."
And that is exactly what they did. The two indexes developed were the two that were accepted and are now being used in RMA's test pilot program. Both closely correlate to forage production, Hamilton says.
The rainfall index is based on National Oceanic and Atmospheric Administration (NOAA) data, and the vegetation index uses the Normalized Difference Vegetation Index (NDVI) satellite data from the U.S. Geological Survey Earth Resources Observation and Science data center. In simpler terms, the first uses rainfall data collected from NOAA 12-by-12 mile weather grids, and the latter is a measure of vegetation greenness from satellite images that correlates to forage condition and productive capacity.
The rainfall index insurance program is being pilot tested in 220 counties in Colorado, Idaho, Pennsylvania, South Carolina, North Dakota and Texas, while the vegetation index program is being pilot tested in 110 counties in Colorado, Oklahoma, Oregon, Pennsylvania, South Carolina and South Dakota.
Only grazingland and hayland that have established perennial crops are eligible for this program. Any forage crop that is annually planted is not eligible unless it is overseeded into existing perennial forage such as Coastal Bermuda.
Since the program was rolled out on August 8 there has been a frenzy of activity. Landowners are apparently signing up in droves.
"It really is a simple, logical program in that you're insuring a percentage of normal rainfall during two or more specified two-month periods," Johnson explains.
The GMS team used 58 years (1948-2005) of satellite and actual rainfall data collected by NOAA to come up with a baseline figure for "normal" rainfall during each two-month period for every one of NOAA's 12-by-12 mile grids in each of the eligible counties.
What makes the rainfall index program different from any others tried before is that the production year is divided into six two-month intervals. Interval I includes February and March; Interval II April and May; Interval III June and July, and so forth. Producers must choose at least two of the two-month periods, known as an index interval.
A producer would typically insure acreage for the interval that best fits when his production occurs or when he is at the greatest risk if he doesn't get precipitation, or he may decide it's worth it to insure part of the total acreage in all six intervals. Participants can even look back at historical indices for their particular grid or grids to help in making these decisions.
For the rainfall index program in Texas, not more than 50 percent or less than 10 percent of the acres to be insured may be entered in any one of the intervals selected, and the sum of the acres by interval cannot exceed the total insurable acres. Producers are not required to insure their entire acreage for the entire crop year, but rather may choose to insure only those periods when rainfall is most critical.
The premium and indemnity, if one is due, is based on a predetermined level, the individual level of protection, and the number of insured acres. The base level is a derivative from the USDA-FSA Grassland Reserve Program prices for grazing land and national Agricultural Statistics Service state hayland rates, U.S Geological Survey land cover estimates, as well as regional forage and hayland values.
In Archer County, Texas, for example, the county base value is $9.53 while in Brewster County it is $6.62. Thus a policyholder may choose to insure from 60 up to 150 percent of that county base value. The higher the percentage, the higher the premium.
Landowners are also asked to choose coverage from 70 to 90 percent of "normal" rainfall within their specified grid during at least two of the two-month intervals.
"If you select to insure at the 90 percent coverage level, then any insured two-month interval that received below 90 percent of normal rainfall for that period would receive an indemnity," Johnson explains.
The beauty of this program, and the reason it works so well, Johnson reiterates, is because the indemnity is not based on a definition of "normal" rainfall over an entire growing period. Rather, each two-month interval stands alone in determining whether or not an indemnity is due.
"We've all seen years where we had average rainfall for the entire year, but it all came in just a couple of large rainfall events. With this program you could get average rainfall for the whole year, but indemnity payments might still be triggered for those two-month intervals that did not receive their fair share," he explains.
"Say you get 15 inches in one of the two-month intervals, but you don't get any rainfall the following two months. In that scenario you would be entitled to a payment for insured acreage enrolled in the drouth-stricken interval," Johnson explains.
"If you select the 90 percent of normal rainfall coverage, you would collect a payment during any of the insured intervals receiving less than 90 percent of normal rainfall for the period," Johnson reiterates. "It's as simple as that.
"The only time you would owe your full premium is if you received rainfall that approached normal levels or exceeded the coverage level threshold during all of the intervals you chose to insure," he adds.
The other factor that makes the program work, Johnson says, is that every county is broken up into grids. Indemnities are paid based on insufficient rainfall within an individual grid in which the property lies rather than what was received on average for the entire county. So even if parts of a county are getting average rainfall, an indemnity may still be due to someone who has insured property within one of the county grids that did not receive its historical average.
To get started, a landowner first must determine the grid in which his land is located. The user-friendly website makes this process a relatively easy one.
"You actually pull up a topo map and then you can narrow your location down using aerial photos. You can pinpoint your house, your barn, etc.
"That location has a grid number, and everything — all your ratings and indexing — is based on that grid," Johnson explains.
Once you've determined your locale and the grid number, the next step is to go into the rainfall index decision tool. It's a matter of filling in the blanks. Information asked is insured crop type, such as grazing land or hay land, coverage level, productivity factor, share, insurable acres, and finally the sample year. Once all that information is plugged in, the handy calculator does the rest. It determines the total premium per acre as well as the indemnity per acre if one is due, based on the information plugged in.
Johnson has plugged in various scenarios for many different grids, and what he's found is that over the last 58 years, 75 to 83 percent of the time, a policyholder's indemnity was more than their policy premium.
"For all of the grids I have examined and back-tested, participation in this program for the 58 years (1948-2005) would have generated indemnity payments to the producer approximating about $1.80 for each $1 of premium the producer paid in," Johnson says.
"For many of the eligible counties in West Central Texas, the premium for hayland costs the producer anywhere from $16 to $28 an acre, depending on the level of protection they choose to purchase.
"For that amount of premium, you're buying a percentage of the $150 to $180 per acre base value for hayland," Johnson notes. "And the results have been similar to those for rangeland, about 75 percent of the historical 58-year timeframe, the policyholder collected more money than he owed. However, as the old saying goes, historical performance in no way guarantees future results. Rainfall totals and distribution during 2007 may conform or deviate substantially from historical levels."
The premiums, he reminds, are heavily subsidized by the federal government. The federal government subsidizes 55 to 64 percent of the premium cost, depending on the level of coverage chosen by the producer.
Any crop insurance agency that's eligible to sell federal crop insurance may enroll landowners and/or those who are leasing grazing land or hay fields. Enrollment, he insists, is easy and straightforward. Essentially the process only involves verification of insurable acres, eligibility and determining the grid in which the land should be enrolled.
"Unlike with a provisional row crop enrollment where you have to verify acreage, what you planted, when you planted, what actual yields you achieved, etc., this program is as simple as your name, social security, ownership or interest in that acreage, location and coverage selection chosen by the producer. No further site appraisals or adjustments will be needed to administer the program."
Johnson has already presented about 10 educational seminars on the new program, and he has 30 more scheduled over the next 40 days or so.
"Because most of these livestock guys have never dealt with crop insurance per se, they're generally a little skeptical about the program at first," he comments. "It sounds too good to be true, but for those who have attended some kind of educational seminar, most of them have been very receptive to the idea."
Johnson says the easiest way for producers to understand the program is to plug in various scenarios for their property using the decision support tools.
The pilot project will be used to tweak the program and to gauge producer interest.
"We have to have enough participation to give the programs a fair test," Hamilton notes. "It's being tested in six states from the Northwest to the Southeast, and we have it in the Carolinas as well, so geographically, the country is well represented."
Producers have until November 30 to enroll. The first two-month interval starts Feb 1, 2007.
"I would be amazed if producer participation didn't far exceed expectations," he comments.
The user-friendly Internet map locator tool and other decision aid tools may be accessed at http://prfri-rma-map.tamu.edu.
More detailed information is available at the RMA website, www.usda.gov/policies/pasturerangeforage.
