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2014 Pasture Rangeland Forage Rainfall Index Insurance in NY

Risk Management Agency. 2014 Pasture Rangeland Forage Rainfall Index Insurance in NY. New York Crop Insurance Education Program Risk Management Agency, USDA New York State Department of Agriculture & Markets. January 2014. 1. 1. Pasture & Hayland Rainfall Index Insurance.

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2014 Pasture Rangeland Forage Rainfall Index Insurance in NY

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  1. Risk Management Agency 2014 Pasture Rangeland Forage Rainfall Index Insurance in NY New York Crop Insurance Education Program Risk Management Agency, USDA New York State Department of Agriculture & Markets January 2014 1 1

  2. Pasture & Hayland Rainfall Index Insurance • The Rainfall (precipitation) Index is based on more than 50 years of data from the National Oceanic and Atmospheric Administration (NOAA) • The insurance coverage is for the single peril – less than normal precipitation, expressed as a percent of normal (index) • No information about forage yields has to be provided by producers 2 2

  3. The Program is Available in all NY Counties 3 3

  4. Program Overview • Index Background • Lack of actual producer/industry production data • No consistent and sound methodology for measuring production for the crop • The deviation from long-term normal precipitation is used to establish the index • Precipitation has a high degree of correlation to forage production 4

  5. Program Overview • Index Driven • Based on NOAA Data • NOAA Reports Precipitation Data • Widely used source of precipitation information • Dependable source of data • Long data history – Since 1948 • Consistent and universal coverage through a grid system 5

  6. PRF Rainfall Index Insurance Program • A rainfall index is used as a “proxy” indicator of the amount of forage production on pasture/grazingland and hayland. • A rainfall index is constructed for each approximately 12 square mile grid in the state for 11 separate two month “index intervals” in a crop year. • The size of each grid is determined by how the National Oceanic and Atmospheric Administration (NOAA) reports rainfall data in the United States. 6 6

  7. PRF Rainfall Index Insurance Program • Data on daily rainfall have been collected by NOAA for each Grid since 1948. • These data are used to construct a rainfall index for each two month period where an index value of 100 represents average rainfall in each Grid for the index interval of interest. 7

  8. Pasture, Rangeland, Forage Rainfall Index Pilot Program • The PRFRI : • A Group Risk Program that provides insurance against reductions in the Rainfall Index below its average value for each insurance or “grid” area in the insured index intervals. • A product used by producers with forage production on pasture/grazingland or hayland (feed for livestock comprised of plants grown for haying or grazing). • Producers need to recognize that it is possible for them to have low forage production on the acreage they insure and still not receive a payment under this group risk plan. • The actuarially fair insurance premiums are subsidized by the federal government 8 8

  9. PRF Rainfall Index Insurance Program:Concepts • Most GRP insurance programs are based on county level information • The PRF Rainfall Index program is based on geographic grids. • A grid includes all land within an approximately 12 mile by 12 mile area and is identified by longitude and latitude. • A unique Rainfall Index exists for each grid in each insurance time period. 9 9

  10. PRF Rainfall Index Insurance Program:Concepts • Grid Identification Number (GRID ID): A specific code associated with each grid contained in the actuarial documents for the PRF Rainfall program. • The Grid ID is determined by a geographic “point of reference” selected by the forage producer that identifies the location of the area on the map the producer wants to insure. A part (but not all) of the area to be insured must be in the selected GRID • The RMA website provides producers and insurance agents with information about the Rainfall Index for each grid and the PRFRI product for that grid. 10 10

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  12. PRF Rainfall Index Insurance Program: Concepts • The insurable crop is defined as pasture orhaylandinitially seeded to perennial crops before July 1 of the previous year. • There are two crop types:pasture/grazing landand hayland. • Pasture/Grazing landhas an established stand of perennial forage suitable and intended for grazing by livestock. • Hayland has an established stand of perennial forage suitable and intended for haying. Acreage that is intended to be used for both can be insured for use as pasture or for use as hay. 12 12

  13. PRF Rainfall Index Insurance Program:Acres to be Insured • Each grid’s Rainfall Index is normalized so that the value of 100 represents average rainfall. • Historical values for each grid can be viewed at: • http://www.rma.usda.gov/policies/pasturerangeforage/ • Click on Historical Rainfall Indices • Enter the State, County and Grid Number across the top and the historical values for the grid will be viewed 13 13

  14. PRF Rainfall Index Insurance Program:General Principles • Each grid’s Rainfall Index is normalized so that the value of 100 represents average rainfall. • A producer will receive an indemnity payment when the Rainfall Index value for the grid falls below 100, minus deductible, in each index interval which the producer has chosen to insure. • Ex: {100 – 10% (90% coverage level)} 14 14

  15. PRF Rainfall Index Insurance Program:Implementation • The crop year PRFRI in is divided into 11 periods referred to as the “index intervals.” These intervals are: • Jan 1 through Feb 28 Feb 1 through March 31 • Mar 1 through Apr 30 Apr 1 through May 31 • May 1 through June 30 Jun 1 through July 31 • July 1 through Aug 31 Aug 1 through Sep 30 • Sep 1 through Oct 31 Oct 1 through Nov 30 • Nov 1 through Dec 31 • A producer must select at least two intervals for insuring forage production on the hayland and/or pasture/grazingland to be covered in each grid. • At least 10% and no more than 70% of the total insured acres can be insured in any single interval. 15 15

  16. PRF Rainfall Index Insurance Program:Interval Selection • Each producer must decide which intervals they want to select to insure against losses in forage production (no less than two; cannot insure any month more than once during the insurance year) Total acreage in all periods cannot exceed the total eligible acres available. ) • For example: • A producer may be concerned that a lack of rainfall in early Spring could result in lack of forage in the summer. So the producer may choose to insure against low levels of rainfall in March-April. • A producer may also be concerned about the availability of a second hay cutting and fall forage due to lack of precipitation in the summer and so may also insure in June–July . • So a producer with 100 acres of pasture/grazingland and 100 acres of hayland may want to insure half of those lands in the March-April interval and half in the June-July interval. 16 16

  17. PRF Rainfall Index Insurance Program:Amount of Insurance • County Base Value: The production value of pasture/grazingland or hayland forage production in a county (determined by RMA for each county). • Coverage Level: The percentage of the county base value chosen by the producer for insurance coverage on forage production. • A producer may choose a coverage level of 70, 75, 80, 85 or 90 percent. • Producers must insure each grid in the same county at the same coverage level. • CAT coverage is not available for the PRFRI, but a producer may also acquire NAP coverage from the USDA Farm Service Agency. 17 17

  18. PRF Rainfall Index Insurance Program:Amount of Insurance • Pasture & hayland have different county base values. • The base value for hayland is $224.74 in all counties • The base value for pasture varies by county from a low of $15.41 to a high of $44.32 18 18

  19. PRF Rainfall Index Insurance Program • Productivity Factor: A percentage between 60 and 150 percent chosen by the insured producer to reflect their individual operation’s forage value relative to the county base value. • (Influences how much you will be paid) • Producer Share: The operator’s crop ownership share of the forage production. • Producers may select coverage levels and productivity factors to reflect the forage production value of the acreage they are insuring. • (Coverage factor influences how often you will be paid.) • Productivity factor influences the amount of payment 19 19

  20. PRF Rainfall Index Insurance Program • For example, a producer may believe that the value of forage production on the insured area is similar to the county base value. • So the producer may select a coverage level (say 90%) and productivity factor (say 110%) to obtain coverage approximately equal to the county base value. • As Coverage levels increase frequency of loss increases. 20 20

  21. PRF Rainfall Index Insurance Program:Indemnities • Indemnitiesare paid when the grid’s average Rainfall Index for a specific interval is lower, less than 100 - deductible. • The Expected GRID Indexfor each interval is established by the Risk Management Agency using historical data on precipitation for that interval and always equals 100. • The Expected Grid Index is therefore known to a producer prior to the November 15 sales closing date. • A producer can examine a grid’s historical rainfall values for each interval at: http://www.rma.usda.gov/policies/pasturerangeforage/ • Click on Historic Rainfall Indicies and enter the State, County and Grid ID 21 21

  22. PRF Rainfall Index Insurance Program:Indemnities • The Final Grid Index Value for a specific interval is determined by the Federal Crop Insurance Corporation using the NOAA actual rainfall determination for the grid during the interval. • A rainfall index value of 100 represents the average value for the index in the interval of interest. • A rainfall index value of less than 100 represents a lower than average value for that interval. • The Final Grid Index Value for an interval can only be calculated after the end of the interval. 22 22

  23. PRF Rainfall Index Insurance Program:Indemnities The Trigger Grid Index = 100 x the coverage level (selected by the producer). An indemnity payment is made if the Final Grid Index (determined by RMA) is less than the Trigger Grid Index. Indemnity payment = Policy Protection per Unit x Payment Calculation Factor (PCF). where PCF = [Trigger Grid Index – Final Grid Index]/ Trigger Grid Index. 23 23

  24. PRFVI Insurance Program: Hayland Example in Tompkins County Grid #27216 24 24

  25. PRFVI Insurance Program: Hayland Example in Tompkins County Grid *Producers also must pay an additional $30 administration fee 25 25

  26. Indemnity Payment Calculation • No Indemnity payment for the Jun-Jul Interval because the Final Grid Index (212.6) was greater than the Trigger Index (90) • The payment calculation factor for the Feb-Mar Interval is determined by subtracting the Final Grid Index from the Trigger Index and dividing the difference by the Trigger Index PCF = [Trigger Grid Index – Final Grid Index]/ Trigger Grid Index. (90 – 54) = 36 / 90 = 0.400 • Policy Protection X Payment Calculator Factor = Indemnity Payment $11,125 X 0.400 = $4,450.00 26

  27. PRF Rainfall Index Insurance Program Summary • The PRF Rainfall Index product is a group risk insurance program in New York. • Sales closing date is November 15, prior to the insurance year. • The program covers pasture/grazingland and/or hayland production in New York. • This program is based on rainfall indexes calculated for 11 periods during the crop year (index intervals). • Producers must identify the location of the insured forage as to the PRF grid, FSA identifiers of farm serial number, tract and field. 27 27

  28. PRF Rainfall Index Insurance Program:Indemnity Payments • No information about forage yields has to be provided by producers • Final Grid Indexes are available approximately 2 months after the period/interval. • Indemnity payments are usually made 4 months after the end of the index interval 28

  29. Take home message: If you had 90% coverage, and rainfall fell below 90 % a loss is triggered Historical rainfall indices, Grid #27216, Tompkins County, New York

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  31. Using cover crops with insured crops – guidance available • Get copy from USDA NRCS website - itmay be updated periodically(www.nrcs.gov)

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  33. 2014 Risk Management Check Up Is YOUR 2013 Risk Management Plan Adequate to Manage 2014 Risks? (Increasing Input Costs, Prices & Weather Volatility) 33

  34. Additional Information can be found at: USDA Risk Management Agency (RMA) This institution is an equal opportunity provider. www.rma.usda.gov/ To find a crop insurance agent, go towww.rma.usda.gov/tools/agent.html to use the agent/company locator tool. NYS Department of Agriculture and Markets Crop Insurance and Risk Management Education http://www.agriculture.ny.gov/AP/CropInsurance.html 1-800-554-4501

  35. The alternative to having crop insurance. • The alternative to having crop insurance

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