Crop Insurance –
Opportunities for Utah
Ranchers
Brandon Willis
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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
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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
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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
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How Does it Work?
Indemnity
Premium
Farmer
BUT
+
Uncle Sam
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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
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Crop Insurance for Ranchers – Pasture,
Rangeland and Forage
Hay
SNOW
OR
RAIN
Serves
as
Proxy
Forage
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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
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NOAA Weather Stations
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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.
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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.
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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
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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
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Coverage Levels
Coverage Levels
• 70, 75, 80, 85 and 90 percent of historical
moisture (rainfall or snow)
Productivity Factor
• 60 percent to 150 percent
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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
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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
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What if Utah Ranchers purchased PRF
like Iowa Corn Farmers?
• $35 million dollars to Utah ranchers annually
• Improved cash-flow during drought
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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
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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]
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