Ranchers, particularly in the West, are an independent bunch. This characteristic, perhaps more than any others, has caused many of us to shun and even look past opportunities that could strengthen our ranching operations and financial future.
Kevin Borba of Nevada would certainly agree he fits in that category. After years of battling with the Bureau of Land Management and wild horse initiatives, the last thing he was interested in was another federal agency saying, “I’m from the government and I’m here to help.”
Borba is not unique in this attitude of distrust toward a department or program supposedly created to help him. But one experience with a federal agency has Borba and many more like him feeling like maybe, just maybe, there’s a bright future for his family on his ranch after all.
With all the challenges he’s been through on his ranch the last few years, Borba found himself in default with his bank, struggling to hold on to his ranch. After passing on the opportunity to purchase Pasture, Rangeland and Forage (PRF) insurance for a couple of years, he experienced a couple of really tough years. Eventually, Borba decided to see what all the PRF talk was about.
With the help of a close friend, who helped him recognize his opportunity to eliminate some risk on his place, Borba purchased PRF insurance for the first time. The short version comes down to, according to Borba, the checks he received from his policy last year, which are the difference between him being on the ranch today and it being bank-owned. He said his only regret is not having PRF insurance years earlier.
You may feel this is a unique, one-of-a-kind situation, but there are thousands of examples like this where individual ranching operations simply would not have survived the drought and lack of rainfall in the West over the past few years without the safety net of PRF insurance.
The amazing thing is how many people still choose not to participate because they don’t understand it.
What is PRF insurance?
So what is PRF insurance and why is it so different from everything else out there for ranchers?
First off, ranchers have had nothing close to the same level of support and safety net that our farming friends have had, and PRF is a great tool to help level the playing field and give livestock producers a better chance at prosperity.
Max Thomas was instrumental over a decade ago in getting PRF started. Thomas heard about an early warning drought monitoring program that Texas A&M University was developing. This program was never aimed at being used for insurance, especially crop insurance, but Thomas saw it through a different lens.
As an insurance broker in Texas, he had scores of clients with protection for their corn and cotton, but it bothered him that he had nothing of significance to help his livestock producers manage their risk.
The short version is that USDA’s Risk Management Agency (RMA) embraced Thomas’ vision, at least in principle, and moved forward to create a Pasture, Rangeland and Forage insurance. The PRF product has been adapted and refined over the last decade and is still technically in pilot stage. But one thing is clear: It is helping keep families on the ground, and that’s something that’s pretty easy to get behind.
One of the most fascinating things about this insurance is it does not require any subjective human judgement of whether or not a loss was sustained on a ranch.
One of the most fascinating things about this insurance is it does not require any subjective human judgement of whether or not a loss was sustained on a ranch. It goes 100 percent off of National Oceanic and Atmospheric Administration (NOAA)-provided rainfall data.
It’s what they call an index program, with current rainfall collected from regional rain gauges being compared against the 70-year rainfall average. When current rainfall levels are below a certain threshold, then an indemnity payment (claim) is triggered. The drier it is, the larger the indemnity.
What makes PRF insurance even more unique is the feature that coverage is actually distributed throughout the year in two-month segments, not just as one lump for the entire year. It’s almost like having several small policies spread throughout the year. This wise inclusion by the RMA is a critical component that addresses the all-too-common situation where a producer has an above-average water year on an annual basis that looks great on paper, but still suffers significant production loss because they didn’t receive that annual moisture during the months that greatly impact his operation.
This spreading of coverage into two-month segments throughout the year is critical and greatly increases the chances of the insurance policy being helpful and supportive to the producer.
There are a few elements which allow this program to truly be beneficial and work in favor of ranchers, while still making it a responsible and good use of taxpayers’ dollars:
• If ranchers share in the premium cost, RMA will pay half;
• No premium is due at time of signing;
• Coverage spans throughout the year; and
• The program is administered by private third-party crop insurance agencies, not by the Farm Service Agency (FSA) (it’s not Noninsured Crop Disaster Assistance Program [NAP] insurance).
Ranchers sharing premium cost
This first element is a subsidy (51-59 percent), but it is lower than most other crop insurance products, and it demonstrates a very important difference. The rancher is not standing with his hand out saying, “Give me some money for raising cattle.” Instead, he is saying, “I am going to stick my neck out to raise livestock, work hard, and help provide a safe, reliable food supply in the United States, and I’m also willing to be on the hook for a portion of this premium if you will just back me.”
You may ask what the difference is, and to me, it is the difference between capitalism and socialism. While this is a significant portion to have the USDA contribute and certainly some outside of our agricultural circles may argue this is inappropriate, the truth be known, this level is actually significantly lower than the subsidy level on the majority of crop insurance products for row crops.
But the rancher must be willing to bear a measure of the risk and be on the hook to pay a portion of the premium in order to get the benefit of this extra RMA subsidy.
But the rancher must be willing to bear a measure of the risk and be on the hook to pay a portion of the premium in order to get the benefit of this extra RMA subsidy. In essence, only ranchers who are willing to stick their neck out for a significant portion of this premium are able to protect their neck, rather than having their hand out asking someone else to do all the risking for them.
No premium due at signing
To keep the barrier to entry low and to assist ranchers with their cash flow, the rancher portion of the premium is not due until over nine months after fall sign-up. This allows the policy to be put in place, and if some coverage was placed in early months, at least some level of claim will have triggered during the first half of the year, and reduced or eliminated the premium owed by rancher.
Coverage throughout the year
Coverage is distributed throughout the year when it will be most beneficial to the livestock producer. This spreading of coverage to several specific months of the year helps broaden the safety net for producers. One problem you will be familiar with is the good year that just wasn’t actually good! That all-too-common experience occurs when the overall moisture for a year exceeded the annual average, but because of the unfavorable timing of when that moisture arrived, you experienced low production.
PRF insurance coverage has made provisions for this, allowing you to have coverage in two-month intervals that are not attached to results in other months. So even if the year starts out crazy wet and you get 300 percent of your annual rainfall in the first two months, those two months will not have any bearing on April-May coverage, for example.
If it gets dry in April-May, an indemnity would be triggered in the rancher’s favor, no matter how wet it was before or after that April-May time period.
Without PRF insurance, a rancher in Arizona who experienced an above-average precipitation year, but never received his vital monsoon rains, could be in a world of hurt, even if other parts of the year had been wet. This targeted coverage is highly critical to the success of the program and keeping ranchers in a healthy spot financially when the rains don’t show up.
Third party agencies
Many have confused PRF insurance with the NAP insurance available through the FSA. NAP is a very different program, aimed more at providing assistance with catastrophic drought. PRF is simply insuring against lack of rain. It doesn’t have to be a bone-dry drought in order to trigger a claim for the policyholder. PRF insurance is sold and serviced by licensed crop insurance agents.
Another wonderfully capitalistic component is that you get to choose your agent rather than be assigned to a government official you may or may not have a good relationship with. You can have the crop insurance agent you’ve selected pull a NOAA-based rainfall report specific to your ranch. This historical data, on which the program centers, will quickly give you a very good idea whether PRF would have been a benefit to you in past years.
There are likely opponents of PRF insurance. These are those who just plain don’t like the idea of the federal government being involved in any kind of subsidy for farmers and ranchers. Having personally spent the majority of my life in that boat, I now understand the vital role federal crop insurance has played in helping to keep our food supply strong and keep farming families supported in producing food for our nation and the world.
PRF insurance is the first true shot in the arm to give ranchers the level of support and backup that’s been provided to row crop farmers. The question is: As a producer, are you willing to compete on an uneven playing field?
Perhaps you have in your mind that the government should not be involved in anything! If we were able to operate in a completely free global marketplace, we would be having a very different discussion. Our well-intentioned leaders will continue to have impacts, some positive and some negative, on our agricultural markets.
The RMA’s decision to champion and subsidize PRF insurance is monumental in a positive way for livestock producers.
The RMA’s decision to champion and subsidize PRF insurance is monumental in a positive way for livestock producers. It may be the first federally backed situation that is actually helping Western ranchers get a leg up in a significant way and putting a little optimism in their boots.
Whether you are trying to keep the ranch in the family, survive the next dry spell, or just eliminate some of the risk of raising livestock, PRF insurance is a powerful tool to be considered.
