1. Q: What are important PRF program dates?

2. Q: Who is Rain Insure?

3. Q: Who is Central Crop Insurance Services, Inc?

4. Q: What is the Pasture, Rangeland, Forage (PRF) Rainfall Index Insurance Program?

5. Q: What makes the rainfall index a good risk transfer tool for forage producers?
   

6. Q: What are potential drought strategies for hay and pasture land?

7. Q: What is the insurance?

8. Q: What is the coverage?

9. Q: What are insurable crop types?

10. Q: What is the rainfall index for a grid?

11. Q: What is a Grid?

12. Q: Does each grid have a weather station?

13. Q: So how does the grid rainfall index offer me risk protection?

14. Q: Does the rainfall index predict forage production on each insured's operation?

15. Q: What’s an interval?

16. Q: How are the PRF insurance rates calculated?

17. Q: What is the productivity factor?

18. Q: Is the PRF premium subsidized?

19. Q: What are Coverage Levels?

20. Q: If my grid has a loss, how will I be paid?

21. Q: Does my PRF policy have a disappearing deductible?

22. Q: What can I do with my PRF payment?

23. Q: What factors make PRF a good risk management tool?

24. Q: What is Hay Guard™?

25. Q: How does PRF work with FSA’s SURE and LAP programs?

26. Q: What is a good resource to keep up with SURE program developments?

A: The internet service of Central Crop Insurance Services, Inc., Kingdom City, MO.  Our site provides you valuable information about Pasture Rangeland and Forage (PRF) and Hay Guard™ insurance programs for Missouri forage producers.

A: We are the leaders in area programs.  Our staff has developed area risk management programs for the Risk Management Agency since 1996.  We understand the PRF program model and can maximize its value to you.

A: It is not traditional crop insurance!  PRF is a rainfall index that transfers the producer’s risk of low rainfall that likely causes low forage production.  Therefore PRF has high value for producers whose forage production is strongly correlated with NOAA’s rainfall records.

A: As “Rain makes grain” there is also the assumption that rain also makes forage. So following that reasoning, when rainfall is below average there tends to be low forage production and when there is above average precipitation a livestock producer would expect abundant forage production.

A: When drought happens pastures dry up, hay inventories become depleted and hay becomes expensive. That leaves livestock producers with few management options such as using hay reserves; buying replacement hay; or reduce livestock inventory. Each has an adverse effect on the operator’s equity and blood lines.

7. Q: What is the insurance?

A: The insurance is your guarantee that the rainfall for your Grid ID and interval period will exceed your index trigger; If the rainfall is less, you will be paid for the rain shortfall.

 

A: There are two coverage parts to the insurance program:

1. Dollar amount of Protection determined by the type of forage: hayland or pasture.  The Maximum Dollar Amount varies by county. An overall observation is that in most counties the amount is about $200 for hay and pasture land is about $60 per acre.


2. Intervals that are really separate insurance periods.  Each period is 2 month long and begins on February 1 and ends January 31 the following year.

A: Missouri has two insurable forage types: grazingland and hayland.  The policy language is clear that the forage must be perennial but ambiguous about the type so here is a composite definition with emphasis added.

1. Grazingland – “…land suitable and intended for grazing by livestock…”


2. Hayland – “…land suitable and intended for harvest by mechanical equipment...”

10. Q: What is the rainfall index for a grid?

A: Average rainfall in each grid utilizing the National Oceanic and Atmospheric Administration (NOAA) “Unified Rain Gauge.”  This dataset is continuous rainfall data since 1948 for each grid.  The grid rainfall value is gathered by NOAA from several sources including weather stations enhanced with NEXRAD and satellite cold cloud data.

11. Q: What is a Grid?

A: A grid is an area defined by NOAA that is 0.25° latitude and longitude or about an area about 12 miles square. For reference a survey township is 6 miles square or about ¼ the grid area. For instance Audrain county Missouri has 6 grids.

12. Q: Does each grid have a weather station?

A: No. The rainfall information for each grid is developed by NOAA who gathers weather station rainfall data and enhanced with NEXRAD and satellite cold cloud data to measure rainfall across large areas. This data is then assigned to a grid that is part of the NOAA Unified Rain Gauge.

A: This insurance is an index and not individual insurance.  Before buying PRF a producer should evaluate the correlation between their annual hay and forage production and the annual index.  Indexes are good at risk transfer when the index and hay or forage production move in the same direction.  So when the index is low there is the expectation that production will also be low. 

A: The rainfall index does not explicitly predict individual forage production on a given producer's operation. Instead, the index is simply a reflection of how much precipitation is received for a given 2-month interval for a specified weather grid, declared by the producer, relative to a long term average for the same interval and grid. Research indicates that rainfall is highly correlated with forage production, but does not directly predict forage production.

A: An interval is really an insurance period.  Each PRF policy must insure at least 2 intervals and could insure all 6 intervals.

Each interval is 2 months long and begins on February 1 and ends on January 31 of the following year.

• Interval 1 February through March


• Interval 2 April through May


• Interval 3 June through July


• Interval 4 August through September


• Interval 5 October through November


• Interval 6 December through January 

A: As with all RMA programs the target loss ratio is 1.0 without expense loading that is common among commercial insurance. This is extremely fair to the producer because all collected premiums are equal to the expected losses. RMA actuaries analyzed the nearly 60 years of data (1948 to 2007) to calculate the rate.

A: We did the math and only use Maximum Dollar Protection. The RMA answer: A percentage factor selected by you that allows you to individualize your coverage based on the productivity of the crops you produce and may be between 60 and 150 percent. Only one productivity factor may be selected per county and crop type.

A: Yes RMA is cost sharing the insurance at least 55% at the highest level.

19. Q: What are Coverage Levels?

A: Coverage levels are program choices that determine the policy dollar protection, loss trigger subsidy and farmer premium. PRF producers can chose among 5 coverage levels: levels – 70, 75, 80, 85, and 90.

20. Q: If my grid has a loss, how will I be paid?

Loss Payments:

• Sent to you by the company where your loss for each interval and Grid ID is calculated from RMA data compiled from NOAA records.  This information is available on our website: www.raininsure.com and listed on the RMA website: www.rma.usda.gov.


• Due you when your insured interval’s Final Grid Index is less than your chosen Trigger Grid Index.


• Are based on the amount of shortfall below normal for each Grid ID and interval.


• Have a disappearing deductible that increases the payment as the loss size increase, such that when the shortfall equals the index there is no deductible.


• Are separate for each Grid ID and interval.


• The payment will be equal to the shortfall of the interval index below the Trigger Grid Index and multiplied by the policy protection per grid.

21. Q: Does my PRF policy have a disappearing deductible?

A: Yes.  As the loss gets larger, the deductible gets smaller.  This is the same formula as the Group Risk Plan (GRP) and crop hail policy.  If there were zero rainfall for the Grid ID and interval the loss payment would be 100% of the Dollar Amount of Protection.

A: The PRF payment is yours without restriction.

A: For your consideration we’ve developed this decision aid:

                                                                    PRF Decision Balance Sheet

24. Q: What is Hay Guard™?

A: Has it ever rained on your down hay?  Don’t get mad; get Hay Guard™.  Hay Guard™ is a Central Crop Insurance Services proprietary private sector product that insures your crop against untimely rain. Contact Rain Insure for details.

25. Q: How does PRF work with FSA’s SURE and LAP programs?

A: SURE and LAP are Farm Service Agency programs with eligibility requirements including insurance, either NAP or PRF.

NAP is an FSA program covering 50% historic yield and 55% price that costs $250 per crop.  Since this is an individual yield based program, FSA will likely require producers to provide yield and acreage records to establish your production history.

PRF is a rainfall index program that meets FSA eligibility requirements and you do not need production records with PRF.  The minimum PRF policy is 70% coverage level and 2 intervals.

26. Q: What is a good resource to keep up with SURE program developments?

A: Your county FSA office is good and they are very willing to help.  Another resource is Dr. Barnaby, Extension Economist, Kansas State University.

http://www.agmanager.info/about/contributors/Presentations/Barnaby/presentations.asp

*See Coaching Note #9 for additional insight.

Coaching Note #1:

PRF is crop insurance because RMA says it’s crop insurance.  RMA took the index and constructed a crop insurance program with all the usual crop insurance program components including contract language to define eligible location and crop, then provided a robust inventory of subsidies to encourage producers to buy PRF.  Those subsidies include, producer cost share starting at 55%, a 1.0 loss ratio, and pay administrative expenses.

To get the highest value from the PRF we suggest selecting the highest Dollar Amount of Protection.  Hay prices in normal markets are not even close to the market price when drought happens.  It is expensive to replace hay or add pasture land during a drought.  Having the financial ability to buy more expensive hay is a risk management strategy many are implementing. 

Coaching Note #3:

We proposed that there are two levels of accuracy about Grid ID’s:

1. Getting the correct Grid ID so that producers can evaluate the PRF program.


2. The accuracy required to develop a schedule of all pasture locations and the documentation needed to request a PRF policy. 

This is our service and your assurance that your policy is correct and will withstand RMA and company audits.

Coaching Note #4:

Risk assumption is that Missouri pastures generally show drought and experience low forage production in July and August.  Two proposed risk management strategies:

1. Insure the prior interval to observed drought with the theory that damage will appear later.  This will also provide money when the damage occurs and when replacement forage will be purchased.


2. To insure the interval when the drought is observable as there is risk that the forage will not recover. 

PRF is a no brainer!!  The financial incentives are huge.  There is no other insurance program that calculates rates where the premiums over a given period just equal the losses.  Then add to that the generous subsidies, the PRF program is a sure winner for eligible producers.  This also favors PRF as a risk management tool.

Coaching Note #6:

RMA subsidies bend the PRF financial analysis very favorably toward the forage producer.  The RMA provides the FRP program with abundant subsidies to encourage PRF purchase.  The largest subsidy is the premium subsidy that begins at 55% for the highest coverage and increases at lower coverage levels.  PRF premiums are calculated so they equal the losses over time.  That formula is another RMA financial benefit that provides additional value to PRF policyholders.

Coaching Note #7:

For forage producers striving to make their PRF policy the best risk management value and maximize the balance between cost and coverage should review strategies provided in

Coaching Note #8:

Coaching sheet: Possible uses:

1. Replace lost hay or pasture inventories, making it possible to retain cattle inventories and precious blood stock.


2. Have the financial ability to buy expensive replacement inventory caused by low rainfall.


3. There is also the potential to arbitrage PRF with other crops.  Contact us for a personal consultation of this strategy.

Coaching Note# 9

When your choice is between NAP and PRF there are some evaluation considerations for the decision that best fits your situation.  I have provided some possible strategies for consideration:

• The best risk management value strategy.  Good risk managers will ask, what is the best value to my business?  This requires data and effort and we can help producers work toward this decision through a comparison worksheet.  You can contact us for the data needed in your worksheet.

• The entry ticket strategy.  I want to spend as little as possible to qualify for SURE and LAP.  Your benchmark expenditure is the $250 NAP premium for each crop.  This could be $500 for both hayland and pastureland.  Do the math to see which program is least cost.

• The minimal work strategy.  I want eligibility but I want the least work.  With the NAP individual yield requirement the PRF is a better choice since it is an index and requires no historic production records.

• The least cost strategy.  This will require some math and knowledge of your hayland and pastureland acreages, locations.  The challenge is to evaluate the cost of each program.  With small acreages, PRF will likely be the best value because the benchmark is the $250 NAP premium.  For large acreages, the NAP program will be the least premium, but will require work to establish production records.