This article is written by Jen Livsey, a Pasture Insurance Specialist for Texas AgFinance, about insuring your ranch against drought. A graduate of the masters program at the King Ranch Institute for Ranch Management, Jen is an expert in all areas related to ranch management.
As drought continues to plague much of the United States, managing risk is top of mind for many owners and buyers of ranches. Pasture, Forage, and Rangeland (PRF) Insurance allows livestock and hay producers to insure their owned or leased property against drought. Often referred to as grass, rain, pasture, or drought insurance, PRF is a highly customizable product developed by the United States Department of Agriculture and sold by private agricultural insurance agents. PRF pays when rainfall or vegetative conditions in a given area during a selected time period are below a selected percentage of historic average conditions. PRF is customizable because a policy owner chooses which time periods to insure, how many acres they want to insure, what type (hay or pasture) of land they want to insure, and what percentage of average historic conditions they want to insure. These decisions and the geographic location determine the price of this insurance.
Two measurement systems, or indices, are used in the Western States (see map). In Rainfall Index states like Montana, the Dakotas, Texas, and most of Colorado, rainfall amounts for 12 x 12 mile grids are determined by the National Oceanic and Atmospheric Administration (NOAA) for 2-month intervals. In Vegetative Index states like New Mexico, Wyoming, Utah, and the western slope of Colorado, the United State Geological Survey (USGS) uses satellite imagery of 4.8 x 4.8 mile grids to measure plant growth over 3-month intervals. Neither index requires a policy holder to keep any records. Both indices express conditions as a percentage of historic average conditions. For instance, take a grid in Nebraska; if the number for January-February comes in at .568, NOAA has determined that grid received 56.8% of the precipitation it normally receives in January-February, based on records from 1948-present.
Prices and program rules are set by the Department of Agriculture, which means that service and analysis is what sets agents apart. A thorough analysis of a grid’s rainfall or vegetative history and variability, coupled with pricing data and a discussion about goals, budgets, and risk tolerance leads to the optimal policy for any given property. Not every agency has developed the software capable of this analysis. Jen Livsey, an agent with Texas AgFinance, used their software program to help nearly 150 policies realize an average 184% return on premium in 2012 (a 100% return = $2 paid out for every $1 of premium paid). If you are interested in learning more about PRF or would like a quote for your property, Jen can be reached at jen.livsey@texasagfinance.com or 719-659-2494.