{"id":333,"date":"2024-07-16T22:15:32","date_gmt":"2024-07-16T22:15:32","guid":{"rendered":"https:\/\/blogs.oregonstate.edu\/appliedeconomics\/?p=333"},"modified":"2024-07-16T22:15:32","modified_gmt":"2024-07-16T22:15:32","slug":"pasture-rangeland-forage-insurance-in-oregon","status":"publish","type":"post","link":"https:\/\/blogs.oregonstate.edu\/appliedeconomics\/2024\/07\/16\/pasture-rangeland-forage-insurance-in-oregon\/","title":{"rendered":"Pasture, Rangeland, Forage Insurance in Oregon"},"content":{"rendered":"\n
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Credit: Tim Delbridge<\/figcaption><\/figure>\n\n\n\n

I spent most of last week traveling in Eastern Oregon to speak with livestock producers, and the subject of Pasture, Rangeland, Forage (PRF) insurance came up in conversation. It is clear that PRF has become increasingly popular, and may even be impacting land prices and lease arrangements for grazing land. In this blog post I will discuss some basic information about the PRF insurance product and share participation and loss ratio outcomes for Oregon. Later in the post, I link to a spreadsheet that contains more detailed county level data on PRF participation, premiums, and payments.<\/p>\n\n\n\n

The PRF insurance program is designed to help livestock producers manage the risk of poor forage production. It is essentially a rainfall \u201cindex insurance\u201d, meaning that neither the insurance premiums nor the insurance payouts (known as \u201cindemnities\u201d) depend on the management or production outcomes of the individual producer. Rather, the premiums and payouts of the PRF program are based on monthly rainfall totals in a specified grid location. This type of index insurance has the advantage of low administration costs, as farm-level yields and losses do not need to be verified before payouts are made. The drawback is that the forage production on individual pastures may not be highly correlated with the rainfall index for the larger grid, which weakens the effectiveness of PRF as a risk management tool for individual ranches.<\/p>\n\n\n\n

Livestock producers are eligible to insure at coverage levels up to 90% of the expected precipitation amount and must choose how to distribute their coverage over the calendar year. Like other USDA crop insurance programs, PRF premiums are subsidized, with the subsidy percentage based on the coverage level chosen by the producer. For more detailed explanation of the purchase process, and for information on national PRF outcomes, please see this excellent article by Jay Parsons, John Hewlett, and Jeff Tranel<\/a>.<\/p>\n\n\n\n

PRF Insurance has become increasingly popular in Oregon. Figure 1 shows the number of acres insured under PRF from 2016 to 2024. Insured acreage has grown rapidly in the state, with roughly 17 million acres insured. There has been similar participation growth at the national level, with nearly 300 million acres insured in 2023 (USDA-RMA, 2024).<\/p>\n\n\n

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Producers that buy coverage under the PRF program will receive payments if the precipitation index is below the trigger level for the specified months. Given that recent years have been drier than average in much of the state, a large percentage of purchased PRF policies have resulted in indemnity payments. Figure 2 shows the average \u201cproducer loss ratio\u201d for PRF coverage in each county in 2022. The producer loss ratio is defined as the insurance indemnity divided by the net premium paid by the producer (i.e. premium less the premium subsidy). For example, in Union County, the producer loss ratio is 2.26, meaning that for each dollar that the producer paid in PRF premiums, they received an average of $2.26 back in indemnity payments. This is close to the Oregon average producer loss ratio since 2016. A spreadsheet with county level PRF outcomes from 2016 to 2023 can be found here.<\/a><\/p>\n\n\n

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Because the PRF insurance is based on a rainfall index, the payouts are correlated with drought conditions. Figure 3 shows the drought monitor map for October 11, 2022. While not a perfect match, we can see that the areas in drought are more likely to receive higher payouts from PRF coverage.<\/p>\n\n\n

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Crop insurance is often viewed as a gamble, with farmers and ranchers wondering if the decision to insure will pay off. Looking at the map of producer loss ratios alongside the drought monitor map is a good reminder that this program is designed to reduce the financial risk posed by low rainfall and reduced forage production. A \u201cgood year\u201d for forage is more likely to be a \u201cbad year\u201d for PRF insurance, and vice versa. Livestock producers should carefully consider how a year of poor pasture conditions will affect their revenues, and whether PRF insurance could help protect them from these outcomes. Also worth considering is that in Oregon and in the U.S. as a whole, in each year since 2016 producers have received more than they\u2019ve paid in premiums.<\/p>\n\n\n\n

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References:<\/strong><\/p>\n\n\n\n

USDA-RMA. 2024. \u201cNationwide Summary – By Insurance Plan\u201d. Summary of Business. Available at https:\/\/www.rma.usda.gov\/SummaryOfBusiness<\/a>. Accessed July 16, 2024.<\/p>\n\n\n\n

Parsons, J., Hewlett, J. and Tranel, J. 2023. \u201cManaging Risk in a Small Agricultural-base Business.\u201d RightRisk News, Vol. 11, Issue 2. RightRisk Education Team. Laramie, WY.<\/p>\n<\/div><\/div>\n","protected":false},"excerpt":{"rendered":"

I spent most of last week traveling in Eastern Oregon to speak with livestock producers, and the subject of Pasture, Rangeland, Forage (PRF) insurance came up in conversation. It is clear that PRF has become increasingly popular, and may even … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":13051,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-333","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/blogs.oregonstate.edu\/appliedeconomics\/wp-json\/wp\/v2\/posts\/333","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.oregonstate.edu\/appliedeconomics\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.oregonstate.edu\/appliedeconomics\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.oregonstate.edu\/appliedeconomics\/wp-json\/wp\/v2\/users\/13051"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.oregonstate.edu\/appliedeconomics\/wp-json\/wp\/v2\/comments?post=333"}],"version-history":[{"count":1,"href":"https:\/\/blogs.oregonstate.edu\/appliedeconomics\/wp-json\/wp\/v2\/posts\/333\/revisions"}],"predecessor-version":[{"id":339,"href":"https:\/\/blogs.oregonstate.edu\/appliedeconomics\/wp-json\/wp\/v2\/posts\/333\/revisions\/339"}],"wp:attachment":[{"href":"https:\/\/blogs.oregonstate.edu\/appliedeconomics\/wp-json\/wp\/v2\/media?parent=333"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.oregonstate.edu\/appliedeconomics\/wp-json\/wp\/v2\/categories?post=333"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.oregonstate.edu\/appliedeconomics\/wp-json\/wp\/v2\/tags?post=333"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}