What is in this article?:
- Livestock producers have risk management options
- Price risk management
- The Pasture, Rangeland and Forage (PRF) program protects livestock producers from losses to productivity caused by poor forage conditions.
- The decision to purchase PRF must be based on an analysis between the historical results as compared to a producer’s results.
- The Livestock Risk Protection (LRP) program and the Livestock Gross Margin (LGM) program both protect against price fluctuations.
Cattlemen and other livestock producers have several new risk management products available that will help with loss of production and declining prices.
The Pasture, Rangeland and Forage (PRF) program protects livestock producers from losses to productivity caused by poor forage conditions. The Livestock Risk Protection (LRP) program and the Livestock Gross Margin (LGM) program both protect against price fluctuations.
Bill Murphy, administrator of the USDA Risk Management Agency explained the programs at a recent Beef Financial Management Conference in Amarillo.
In 2011, Texas livestock producers bought 5,633 PRF policies on 21,900,291 acres of forage land. Nationally, producers bought 13,237 policies on 34,109,603 acres. “The program was very popular in Texas,” Murphy said.
Texas producers bought 19 LRP policies for 1,474 head of cattle. Figures nationally were 1,460 policies on 209,755 head. Only 1 LGM policy was sold in Texas on 300 head of cattle. Nationally, that program totaled only 8 policies and 1,480 head of cattle.
Murphy said the PRF program is “an area plan only. Losses cover an area called a grid and it is not individual coverage and does not measure actual individual production.”
PRF is based on an index. Deviation from normal/historical levels of either rainfall or vegetation—depending on the program available—provides the basis for payment.
“Payments are made on a timely basis,” Murphy said. “And this program does not reward poor management practices and the producer cannot influence the outcome or losses.”
In Texas, Oklahoma, and Kansas (among other states) the program is based on a rainfall index. If rainfall is lower than the norm during the insured period, the insured producer may collect indemnity. In New Mexico and Arizona (and several other states), payment is based on a vegetative index. If vegetation is lower than the norm during the insured period, the insured may collect.
Murphy said the rainfall index is based on NOAA Climate Prediction Center data. “It uses multiple point data, not a single point system. Deviation from normal includes 1948 to the present.
“Lack or precipitation is the only cause of loss,” Murphy said. “Review of historical data is critical.”
The vegetative index “utilizes satellite remote sensing data to determine deviation from normal: 1989 to present. “Again, review of historical indices is critical,” he said.
The system measures photosynthesis, not forage height, to determine deviation and measures all vegetation/biomass located within the grid. That includes forage, weeds, trees and flowers.
Murphy said producers should look at historical indices (available on a USDA website) to determine if past results track with what producers have observed and if production trends follow those historical numbers.
He said changes in cropping patterns and production practices may alter the vegetative index data. “Producers must spend time reviewing the historical data and comparing that to past production.”
Producers may select certain index intervals(certain months) to insure, so knowing when deviations from norm are most likely will make decision-making much easier and more accurate. “The basis of the decision to purchase must be based on an analysis between the historical results as compared to a producer’s results,” Murphy said.
He said the results may not track 100 percent all the time.