Crop Insurance – Opportunities for Utah Ranchers Brandon Willis 1 History since 2000 Cost $27,625 LOGAN Indemnities $57,216 Cost $31,688 SPANISH FORK Cost Indemnities Cost $25,449 $24,990 $60,546 TREMONTON Indemnities $70,408 COALVILLE Indemnities $38,014 2 History since 2000 Cost $35,496 VERNAL Indemnities $94,370 Cost $83,861 CEDAR Cost Indemnities Cost $36,975 $34,725 $39,474 DELTA Indemnities $105,094 BLANDING Indemnities $80,022 3 History since 2000 Cost $27,200 Cost $28,628 Manti Indemnities $47,494 Woodruff Indemnities $26,225 Cost $40,256 Cost $30,940 Escalante Indemnities $83,918 Milford Indemnities $64,126 4 How Does it Work? Indemnity Premium Farmer BUT + Uncle Sam 5 Why Crop Insurance? • 25 percent – Amount of acres covered in 1988 • 85 percent – Amount of acres covered today • $44 billion – Amount of disaster passed by Congress between 1998-2008. • $1 billion – Amount of disaster passed by Congress since 2008 6 Crop Insurance for Ranchers – Pasture, Rangeland and Forage Hay SNOW OR RAIN Serves as Proxy Forage 7 The Basics • Local rainfall – Insure “local” rainfall over at least 2 month time periods • Actual production or rainfall on a farm DOES NOT MATTER! • Based upon data starting in 1948 • Grids – 17X17 mile grids used to identify land • Payment triggered – When rainfall is less than the insured level a payment is made • Premium – Due in September of following year • Sign Up – November 15th 8 NOAA Weather Stations 9 How Rainfall is Determined • 4 closest reporting stations to center of grid. • Reporting station closest to center has most effect. • Reporting station furthest from center of grid has least effect. 10 Decisions Acres Timing Coverage Level • Any amount of acres up to maximum owned/operate d •Must insure two periods. Each period is two months • 70% to 90% • Productivity adjustments. 11 Acres What is Eligible? • Grazing land • Hay (perennial) • BLM and Forest Service How many acres should be insured? • As many or as few as desired • Better coverage versus increased premium cost 12 Timing • Must insure two intervals in the same year • Intervals are two month periods (i.e. Jan/Feb or Feb/Mar) • No right or wrong way Differing Views: • Spread insurance throughout the year? • Or insure the most important months? • High rate months – Higher premiums frequent indemnities • Low rate months – Lower premiums less frequent indemnities 13 Coverage Levels Coverage Levels • 70, 75, 80, 85 and 90 percent of historical moisture (rainfall or snow) Productivity Factor • 60 percent to 150 percent 14 Coverage Levels 70% Coverage Level 90% Coverage Level • Costs Less • Pays Less Frequently • 59% Discounted Premium • Often Higher Returns • Costs More • Pays More Frequently • 50% Discounted Premium • Usually Lower Returns 15 What are Risks? Risk #1 – NOAA Rainfall Doesn’t Match Rancher’s Rainfall • Inevitably happens • Remember this goes both ways Risk #2 – Rancher pays premium, but doesn’t receive any indemnity • Insurance isn’t a guaranteed payment • Long term success highly probable so plan for the long term – Minimum of 5 years Risk #3 – Rancher insures wrong intervals • No “right” or “wrong” way to pick intervals • Can focus on when rancher needs rain, or spread coverage evenly 16 What if Utah Ranchers purchased PRF like Iowa Corn Farmers? • $35 million dollars to Utah ranchers annually • Improved cash-flow during drought 17 Why Should a Banker Care? • $6,000 annual income • $2,000 annual cost • $4,000 net income annually, more during drought years Utah • 34.5 million acres • 0.5 enrolled • 67 percent return on investment 18 More Information • Decision Support Tool – http://prf.agforceusa.com/ri • Find an Agent – http://prodwebnlb.rma.usda.gov/apps/AgentLocator/#/ • More Information – http://www.rma.usda.gov/policies/pasturerangeforage/ • Contact Info – Brandon Willis (435) 213-0463 or [email protected] 19
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