Research Shows Annual Forage Insurance Is Advantageous to Producers

The deadline to sign up for the Rainfall Index Annual Forage pilot insurance program (RIAFP) is July 15 for forage producers planting between July 15 and December 15. This program offers subsidized risk protection against below average rainfall for annually planted forages used for livestock feed and fodder.

Eligible forages include grasses such as ryegrass and sorgum-sudangrass as well as small grains like wheat, rye and oats, among others. This pilot program administered by the Risk Management Agency (RMA) is currently available in Kansas, Nebraska, North Dakota, Oklahoma, South Dakota and Texas.

The RIAFP relies on a rainfall index calculated using precipitation data collected by the National Oceanic and Atmospheric Administration (NOAA) and is designed to insure against declines in the index for each 0.25 degree latitude by 0.25 degree longitude grid (approximately 12 miles by 12 miles).

The program provides two types of coverage: catastrophic risk (CAT) and buy-up coverage. Premiums for CAT are fully subsidized by USDA and would trigger a payout if the rainfall index for September 2015 to March 2016 is less than 45 percent of the historical average for those months. Alternatively, buy-up coverage allows the producer to select a coverage level up to 90 percent of the historical average rainfall index over two-month intervals, which the producer selects.  Premiums for buy-up coverage are subsidized between 51 percent and 59 percent depending on the coverage level chosen. The value of an acre of production is set by the RMA for each county and may be adjusted using a productivity factor if purchasing buy-up coverage.

Research conducted using forage experiments at the Samuel Roberts Noble Foundation from 1974 to 2008 found little correlation between the rainfall index and ryegrass forage yields, so the program may not provide much yield loss risk protection. However, the correlation between actual rainfall and the index was very high and positive. Thus, the program design should work well at insuring against a particularly dry year. Though producers should not expect a payout every year, results indicated that buy-up coverage at the maximum levels possible would have triggered a payout 20 out of the past 40 years for an annual average of about a $5 gain per acre above the producer’s portion of the premium cost.

Due to the high subsidy levels, this research indicates that eligible producers should sign up for buy-up coverage at the maximum coverage level and productivity factor as long as this does not affect their eligibility for other programs. At the least, producers should consider the fully subsidized CAT coverage, although there is a $300 sign-up fee and CAT coverage is not available if the forage is intended for grazing purposes. Though the buy-up coverage intervals selected do not make much difference, we suggest including the December-January interval as it was positively correlated with yield in our research.
Interested producers should contact their crop insurance agents.  A list of crop insurance agents is provided at the RMA’s Annual Forage website.

Source: Southwest Farm Press

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