Pasture, Rangeland and Forage Rainfall Index insurance (PRF) continues to gain popularity, said Matthew Diersen, risk and business management specialist at South Dakota State University, in a Livestock Marketing Information Center letter called In The Cattle Markets.
PRF is insurance against low precipitation that may be correlated with reduced feed production, Diersen said. PRF has subsidized premiums that cover either haying or grazing with a scaler to adjust productivity for a specific sub-county region.
The deadline to purchase coverage for 2024 is Dec. 1.
COVERED ACREAGE RISING
Nationally, the acres insured by PRF have grown rapidly from about 50 million in 2016 to almost 300 million in 2023, he said. This 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.
For 2023 the coverage was just below $6 billion, Diersen said. The acres covered are somewhat concentrated within southwestern US states. Nevada, Arizona, and Texas each had about 40 million covered acres.
Texas stands out as having more than $1 billion in liability, more than twice that of any other state, he said. Florida is a slight outlier with more than 2 million acres covered.
IN SOUTH DAKOTA
South Dakota use or adoption has been less consistent than the national trend, but from 2022 to 2023 there was a large increase in coverage from 4.3 to 6.3 million acres of the potential 25.5 million acres of all pasture and forage in the state.
PRF was more commonly used for grazing than haying in South Dakota, with 5.9 million acres covering grazing uses, Diersen said. PRF competes with Forage Production insurance and Noninsured Disaster Assistance Program (NAP) coverage for alfalfa and grass hay land.
In South Dakota producers tend to purchase PRF at the 90% level, while coverage is more evenly split between 90% and 85% nationally, he said. The subsidy rate is at its lowest level at the 90% coverage level at 51% of the premium.
EFFECTS APPARENT
The effect of the subsidy becomes apparent when a large enough area is tracked for a long enough period, Diersen said. Full premiums should reflect the cost to attract enough risk-adjusted capital to provide the insurance.
If those returns were, for example, 10%, the indemnity payments would approach 90% of the collected premiums, he said. If more than 50% of the premium is a subsidy, then the indemnity payments would approach $1.80 for every $1.00 paid by producers.
From 2007 through 2022, at the national level, the producer premiums paid in has been $2.6 billion, while the indemnity level paid out has been $5.8 billion, Diersen said. This equates to PRF paying out $2.20 for every $1.00 paid in by producers.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $178.07 per cwt to $180.72, compared with last week’s range of $178.00 to $186.00 per cwt. FOB dressed steers, and heifers went for $280.87 per cwt to $283.84, compared with $283.24 to $292.15.
The USDA choice cutout Tuesday was up $0.06 per cwt at $295.81 while select was down $2.18 at $268.77. The choice/select spread widened to $27.04 from $24.80 with 144 loads of fabricated product and 22 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.35 to $1.40 a bushel over the Dec corn contract, which settled at $4.70 a bushel, up $0.00 1/2.
The CME Feeder Cattle Index for the seven days ended Monday was $226.76 per cwt, up $0.84. This compares with Tuesday’s Nov contract settlement of $228.64, down $0.73.