What You Need to Know About Drought Insurance

For most perils, you can find insurance policies to hedge against potential losses. But there’s something important to note as you work to protect your ranch from the effects of dry weather: Drought insurance, in its own right, does not exist. There is a way to form a good safety net, however, and that’s by securing a Pasture, Rangeland, and Forage (PRF) insurance policy.

At Redd Summit Advisors, we specialize in PRF policies and we educate ranchers on practical ways to manage their cattle and acreage through adverse weather conditions and volatility in the commodity markets. Please take some time to learn more about drought below and how PRF insurance can help safeguard your ranch’s bottom line.

What Defines a Drought?

Technically, a drought is an extended period of dry weather in which a water deficit measures 25% or more below average in a designated area. It reduces available water quantity and quality and can cause economic loss for farmers and ranchers who rely on rainfall for their livestock, pasture, and crops.

When the USDA declares a disaster declaration from drought, they offer emergency assistance and loan programs to aid in recovery, but they do not provide insurance against drought.

What Is a PRF Policy? And Why Isn’t It Called Drought Insurance?

A PRF insurance policy provides ranchers coverage on pasture, rangeland, and forage acres when there’s a lack of rainfall—whether the acres are owned or leased. The PRF Insurance Program is federally subsidized, and policyholders receive indemnity payments when rainfall within an insured area measures under its 70-year average.

When you obtain a PRF policy, most companies allow you to insure for 85-90% of the 70-year average rainfall for your area and then receive indemnity payments on the deficit if a historic lack of rainfall occurs. This means you can become eligible for a payout without your insured area even entering drought conditions. In summary, PRF insurance is not called drought insurance because it protects against lack of rainfall, not dry weather.

How is PRF Insurance Different from Crop Insurance?

PRF is the rancher’s crop insurance, and the crop is grass. Traditional crop insurance does not provide coverage for grasses due to the difficulty in measuring actual yields. Average rainfall is a most accurate way to determine production on pasture, rangeland, and forage land.

I’ve Also Heard PRF Policies Called Rainfall Index Insurance. Are They the Same Thing?

Yes, they are the same thing. Formally called Rainfall Index for Pasture, Rangeland, and Forage (RI-PRF), PRF insurance is administered by the USDA-Risk Management Agency (RMA) and sold through private insurance companies. It was launched as a pilot program in 2007 by the RMA and was broadened in 2016 to provide coverage in all 48 contiguous states.

The term Rainfall Index (RI) comes into play because this insurance program operates on a numbered, national grid system in which rainfall is measured and assigned an index value based on historical average rainfall inside each grid area. Since it’s so hard to measure yields across 100s or 1,000s of acres, the easiest way to measure is through the correlation of rainfall and forage growth within an individual grid area.

How Do I Sign Up for a PRF policy?

Contact Redd Summit Advisors for a free consultation by calling 1-800-825-2355 or filling out our online form. We can discuss the details about coverage and help build you a custom policy that minimizes your risk and maximizes your payout, should your acreage experience a lack of rainfall.

The signup deadline for this insurance is December 1, and you must have a policy in place by this date to ensure coverage for the following production year. Your premium won’t be due until October 1 the following year and if you end up receiving indemnity payments, your premium will be deducted from those payments first until paid in full.

Macy Holmgren

Macy Holmgren is a Digital Marketing Intern at Redd Summit Advisors.

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