By Andi Anderson
PRF, or Pasture, Rangeland, and Forage Rainfall Index insurance, is a type of insurance that protects against low precipitation and its associated reduced feed production. It has become increasingly popular in recent years, with subsidized premiums that cover either haying or grazing. The deadline to purchase PRF coverage for calendar year 2024 is December 1, 2023.
National Trends
The use of PRF insurance has grown rapidly at the national level, with insured acres increasing from about 50 million in 2016 to almost 300 million in 2023. This growth is approaching the upper bound for all pasture and forage acres, which was less than 500 million acres according to the 2017 Census of Agriculture. The total coverage amount for 2023 was just below $6 billion.
PRF coverage is concentrated in southwestern U.S. states, with Nevada, Arizona, and Texas each having about 40 million acres covered. Texas has the highest liability, with over $1 billion, more than twice that of any other state. Florida is an outlier with over 2 million acres covered.
South Dakota Trends
PRF has been a topic of discussion and debate in South Dakota for several years, with its effectiveness being questioned. However, there was a large increase in coverage from 2022 to 2023, from 4.3 to 6.3 million acres. This represents about 25% of all pasture and forage acres in the state.
PRF is more commonly used for grazing than haying in South Dakota, with 5.9 million acres covering grazing uses. It competes with Forage Production insurance and Noninsured Disaster Assistance Program (NAP) coverage for alfalfa and grass hayland.
Producers in South Dakota tend to purchase PRF at the 90% coverage level, while coverage is more evenly split between 90% and 85% nationally. The subsidy rate is at its lowest level at the 90% coverage level at 51% of the premium.
Effect of the Subsidy
The effect of the PRF subsidy becomes apparent when a large enough area is tracked for a long enough period. The full premiums should reflect the cost of attracting enough risk-adjusted capital to provide the insurance. If those returns were, for example, 10%, then the indemnity payments would approach 90% of the collected premiums.
However, with over 50% of the premium being a subsidy, the indemnity payments would approach $1.80 for every $1.00 paid by producers. From 2007 through 2022, at the national level, producer premiums paid in have been $2.6 billion, while the indemnity level paid out has been $5.8 billion.
This means that PRF has paid out an average of $2.20 for every $1.00 paid in by producers. However, the payout can be much smaller when reduced to a smaller area. For example, over the same time in South Dakota, the payout has only been $1.64 for every $1.00 paid in.
PRF is a popular insurance option for producers who are concerned about the impact of low precipitation on their feed production. The subsidy makes it a relatively affordable option, and the indemnity payments can be significant in years with low rainfall. However, it is important to note that the payout can vary depending on the location and the amount of coverage purchased.
Photo Credit: gettyimages-r-j-seymour
Categories: Ohio, Crops, Hay & Forage