Crop Insurance Smooths Income Fluctuations for Ranchers and Forage Farmers
Stressors and impacts
Farmers typically use one of two common methods to feed livestock: either the livestock is turned out to graze in a pasture, or forage is grown specifically for the animals. Regardless of the strategy, sufficient rainfall during the growing season is essential to a prosperous farm. During seasons when conditions aren’t favorable for growing—too dry, too cold, or too wet—ranchers and farmers may need to resort to costly alternatives. For example, feed can be purchased at a premium from other producers, or animals can be sold in their current condition (often at an unfavorable price). Costs can rise quickly, erasing profit margins, reducing family incomes, and impacting local economies.
As the climate warms, the frequency and severity of droughts and extreme weather in parts of the U.S. may increase. Without a stabilizing force to smooth fluctuations in their income, the livelihoods of ranchers and forage producers are at risk.
Reducing financial risk with insurance
To address the potential for financial instability of at-risk producers, the U.S. Department of Agriculture’s Risk Management Agency developed insurance programs for pasture, rangeland, and forage crops. These programs complement the already commonplace insurance plans farmers can buy for their cash crops.
Well before the growing season, ranchers and farmers can buy insurance for two or more two-month periods coinciding with peak growing seasons. At the end of each insured period, the USDA checks the NOAA precipitation index to gauge whether insured lands received above-, near-, or below-average precipitation. If precipitation was below average for the period, insured growers can receive indemnities (cash payouts from the insurance policy). These payouts can stabilize fluctuations in income or enable producers to buy feed for their livestock. This program is one way ranchers and farmers can thrive in the face of variable climate conditions.
Proof that it’s working
The federally subsidized Rainfall Index Pasture, Rangeland, Forage (RI-PRF) Insurance Program takes a lot of risk out of the forage production business. Amy Roeder, a Risk Management Specialist for the USDA and a sixth-generation rancher, is all too familiar with the potential crop impacts posed by drought—her ranch faces the constant threat of insufficient hay to feed their cattle. For the past two years, the program has helped to mitigate these fears. Roeder extols the virtues of the program: “We’ve gotten indemnities that were paid timely, and that has allowed us to buy hay to feed our livestock and maintain our business.”
Roeder is not the only champion of the program. A producer in Lee County, Alabama, corroborates her story: “My 2012 premiums were $1,986, but they resulted in total indemnities of $12,312, which provided us with almost $56/acre to pay for hay and feed in a time when we were severely dry. Not only did it keep us going, but it paid us when we really needed the funds—not six months or a year later.”