It’s not often that you have advance warning that you need insurance. But, if someone told you that tomorrow you had a good chance of having a fender bender, you’d probably go out and increase your automobile coverage. While we can’t predict car wrecks, we do have tools that can give us advance warning for the need of Pasture, Rangeland and Forage, PRF, insurance.
If you’re not familiar with PRF, otherwise known as rainfall insurance, the policy works by insuring your average amount of rainfall. If actual rainfall is less than the amount you insured, you receive an indemnity. The idea behind the policy is that you are then able to pay for some or all the supplemental feed/forage required for livestock. For more PRF details check out this Texas A&M AgriLife blog, or the U.S. Department of Agriculture PRF website, which includes a policy decision tool to help choose the right coverage for you.
How can we know in advance whether we’ll need PRF? We can use several tools, but my favorite is National Weather Service’s Seasonal Forecast Maps. These maps provide a forecast of expected precipitation over a year from the present. The darker the brown over an area, the greater the chance that rainfall will be below average. The darker the green over an area, the greater the chance that rainfall will be above average. White means that there is an equal chance of below or above average precipitation, i.e. precipitation is expected to be normal.
These maps give us an idea of expected precipitation levels well in advance of the PRF signup deadline; Nov. 15 each year. In Texas, precipitation for the remainder of 2021 and for early spring of 2022 is “likely below” average. However, the forecast for the remainder of 2022 is “leaning above” average. Using the forecasts from these maps provide you with a meteorological basis for your PRF purchases. So, for 2022, we might consider beefing up coverage in the periods that include January and February. Admittedly, the weather can change. However, choosing to not use these tools means that your decision making is totally blind.
So, why buy rainfall insurance at all? Isn’t it possible that you’ll lose money if you buy in a rainy year, or allocate your coverage to a month that sees a lot of moisture? Yes. Each year it is possible that PRF will net a loss. However, it’s important to remember that PRF is a risk management tool. It’s not always a home run, but it is designed to limit the downside while leaving the upside wide open. In fact, rough estimates suggest that over time, west of the 100th longitudinal line – around Abilene – for every dollar invested in PRF the program has returned between $2-$3, depending on the grid. Think of risk management tools like PRF this way; the best thing that can happen is that you write a small PRF premium check and have all the rain and grass you need to make it through the year profitably.
– by Justin Benavidez, Ph.D., assistant professor, Texas A&M College of Life Sciences Department of Agricultural Economics and Texas A&M AgriLife Extension Service management economist, Amarillo