Extremely hot and dry conditions have persisted in the region over the past few months of 2023. The most recent US Drought Monitor, released on November 9, 2023, shows about half of the Alabama counties are at least partially included in D3 Extreme Drought intensity. The extreme northeast corner of the state is now also classified at the highest level of intensity—a D4 Exceptional Drought.
How the weather affects agricultural producers is a major issue. Land used for production of hay and forages needs to receive adequate moisture for the growth and maturity of this vital feed for cattle. While weather is out of human control, there are options that producers can use to help minimize the financial impact on agricultural production.
The United States Department of Agriculture (USDA) Risk Management Agency (RMA) administers an insurance program targeted towards producers of perennial forage for grazing and hay. The Rainfall Index (RI) Pasture, Rangeland, and Forage (PRF) insurance program provides an insurance product that is heavily subsidized and is available in every county in Alabama. When rainfall is low, relative to historical averages, this insurance product will pay indemnities on eligible policies to help producers cover replacement feed costs or lost revenue.
Acreage enrolled in PRF has steadily increased in Alabama, as shown in the Figure 1. In the early years of the program, there were slightly more than 60,000 acres enrolled. This has steadily increased over the years. Record enrollment occurred in 2023, with about 270,000 covered acres. However, there is still a lot of opportunity to cover additional pasture acres in the state. According to the 2017 US Census of Agriculture, there were almost 2.3 million acres of pastureland in Alabama, excluding woodland pastured. That means about 12 percent of the total pastureland is enrolled in PRF, providing opportunities for producers to consider this risk management strategy.
The Basics of PRF Insurance
Producer select a grid based on their location and rainfall is measured using the four closest weather stations. Unlike other USDA insurance programs that use the drought monitor, PRF determines covered losses based on a selected guarantee that ranges from 70 to 90 percent of the historical average precipitation from 1948. This is based on a selected two-consecutive-month coverage interval that is chosen by the producer. When the average rainfall index in the selected grid falls below the guarantee for the two-month period then a payment is triggered. The guarantee and coverage period are just two of many different options that are offered to producers to customize the policy to what best suits their individual operation.
Producers also choose the number of acres to insure, with no set minimum and no requirement to insure all acres. This means that PRF can be an option for even small scale producers. The intended use needs to be declared as either haying or grazing. A productivity factor is also chosen so that producers can cover more or less than the average productivity in the area. RMA has an online decision tool (https://prodwebnlb.rma.usda.gov/apps/prf) that allows one to view historical rainfall averages, choose options, and estimate indemnities.
Premiums for purchasing PRF coverage are subsidized by the federal government. Subsidies range between 51 and 59 percent of the overall premium, depending on the coverage level chosen. Given this high level of support, the actual producer paid premiums in Alabama have been less than indemnities paid on eligible policies in all but two of the last twelve years. Figure 2 shows the producer paid premiums (i.e. after premium subsidies have been deducted) and the indemnities paid on all policies sold in Alabama from 2011 to 2022. The only two years when indemnities did not exceed premiums paid by producers was in 2013 and 2018. In nine of the other ten years, the average dollar per acre indemnity exceeded the average producer paid premium by over $6 per acre (excluding 2016 when it was over $25 per acre). Premiums also do not need to be paid until September, after which early season indemnities may cover those costs. It is important to note that these are statewide averages and premiums and indemnities will vary by grid and individual coverages.
To purchase a PRF policy, producers need to contact an approved insurance provider (AIP) and crop insurance agent. One can find an AIP and crop insurance agent at the RMA website https://public-rma.fpac.usda.gov/AipListing/InsuranceProviders. The deadline to enroll in PRF is December 1. Additional and updated information on the PRF program can also be found on the Alabama Cooperative Extension System website at https://www.aces.edu/blog/topics/farming/forage-risk-management-subsidized-insurance-as-a-strategy/.