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Update on Pasture, Rangeland and Forage Insurance and LGM-Dairy

Update on Pasture, Rangeland and Forage Insurance and LGM-Dairy. Insuring Iowa’s Agriculture Ames, Iowa Nov. 9, 2010 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911. In the U.S.: Over 580 million acres of pasture and rangeland

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Update on Pasture, Rangeland and Forage Insurance and LGM-Dairy

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  1. Update on Pasture, Rangeland and Forage Insurance and LGM-Dairy Insuring Iowa’s Agriculture Ames, Iowa Nov. 9, 2010 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911

  2. In the U.S.: Over 580 million acres of pasture and rangeland Over 60 million acres of hay Takes a unique policy to cover the risk for livestock feeding operations Pasture, Rangeland, and Forage (PRF) contains two unique approaches to the issue Pasture, Rangeland, and Forage

  3. Rainfall Index (RI) Based on NOAA weather data Vegetation Index (VI) Based on satellite vegetation data from the U.S. Geological Survey Pasture, Rangeland, and Forage

  4. Title 2012 Source: RMA

  5. Uses NOAA grid data Historical data going back to 1948 Provides protection again low precipitation events (as measured by an index across a grid of land) Rainfall index set at 100 = “normal precipitation” Covers hay land or grazing land Rainfall Index

  6. Coverage levels 65 (CAT), 70, 75, 80, 85, and 90 % Dollar amount of protection per acre Base level set at the county (County base value) Insured picks protection factor: 60 to 150% Dollar amount of protection per acre = County base value * Coverage level * Protection factor Rainfall Index

  7. Rainfall Index • Coverage for at least two 2-month periods (Example: Jan-Feb and June-July) • Indemnities are paid when the actual rainfall index is below the insured index level • Same value as the coverage level

  8. Rainfall Grids 0.25 degrees lat and long Roughly 17 miles north to south and 12 miles west to east Source: AgForce, GMS, and RMA

  9. Rainfall Grids Source: AgForce, GMS, and RMA

  10. In 2010 for grid 24745 Premium rates ranged from $11.24 (May-June) to $20.44 (Nov-Dec) for $100 of protection County base values of $39.21 for grazing land and $194.47 for hay land RI Example

  11. If I covered hay land for Nov-Dec at the 90% coverage level with a 150% protection factor Then my dollar amount of protection is $262.53 per acre ($194.47 * 90% * 150%) And I’ll get an indemnity if the RI falls below 90 in Nov-Dec If the actual RI is 75, then I receive $43.76 per acre ($262.53 * {[90-75]/90}) RI Example

  12. Uses U.S. Geological Survey satellite data Historical data going back to 1989 Provides protection again decreased vegetation events (as measured by an index across a grid of land) Vegetation index (Normalized Difference Vegetation Index [NDVI]) set at 100 = “normal vegetation” Covers hay land or grazing land Vegetation Index

  13. Coverage levels 65 (CAT), 70, 75, 80, 85, and 90 % Dollar amount of protection per acre Base level set at the county (County base value) Insured picks protection factor: 60 to 150% Dollar amount of protection per acre = County base value * Coverage level * Protection factor Vegetation Index

  14. Vegetation Index • Coverage for at least one 3-month period (Example: June-Aug) • Indemnities are paid when the actual vegetation index is below the insured index level • Same value as the coverage level

  15. Vegetation Grids 4.8 mile square Source: AgForce, GMS, and RMA

  16. Vegetation Grids Source: AgForce, GMS, and RMA

  17. Vegetation Grids Source: AgForce, GMS, and RMA

  18. In 2010 for grid 85252 Premium rates ranged from $11.52 (Aug-Oct) to $17.05 (June-Aug) for $100 of protection Coverage only available Apr-Oct County base values of $27.21 for grazing land and $197.88 for hay land VI Example

  19. If I covered hay land for Aug-Oct at the 80% coverage level with a 120% protection factor Then my dollar amount of protection is $189.96 per acre ($197.88 * 80% * 120%) And I’ll get an indemnity if the NDVI falls below 80 in Aug-Oct If the actual NDVI is 75, then I receive $11.87 per acre ($189.96 * {[80-75]/80}) VI Example

  20. PRF Policy Information http://www.rma.usda.gov/policies/pasturerangeforage/ PRF Decision Tool http://agforceusa.com/rma/ri/prf/maps PRF Information

  21. First, a note on my conflict of interest I am one of the creators of LGM-Dairy I still rate the product and receive compensation for its sale Shifting to LGM-Dairy

  22. A dairy insurance program run through the U.S. federal crop insurance program Provides protection against unexpected declines in gross margin (market value of milk minus feed costs) on insured quantities of milk Uses futures prices to determine the expected gross margin and the actual gross margin. What is LGM Dairy?

  23. Changes approved earlier this fall Will be implemented in December Higher deductibles allowed, up to $2.00 per cwt. Premium will be due near the end of insurance period (like crop insurance) Feed ranges are increased Premium subsidies will be available for policies covering multiple months Changes Coming to LGM Dairy

  24. Current rule: Deductible between zero and $1.50 per cwt. of milk in 10¢ increments New rule: Deductible between zero and $2.00 per cwt. of milk in 10¢ increments Provides users greater range of risk management coverage and allows users to choose “catastrophic” levels of protection Deductibles

  25. Historical Choice on LGM-Dairy Deductibles Source: RMA

  26. Current rule: Premium due at sign-up New rule: Premium due at the end of the coverage period The premium billing date is the 1st business day of the month after the last month of the target marketings for the policy Makes the premium timing more like that for crop insurance Premium Timing

  27. For the 2010 reinsurance year, the average LGM-Dairy policy that was purchased had a premium of $5,833 Sizable premiums up-front can create cash flow issues Delayed premiums, timed with potential indemnities, reduce those issues Premium Timing

  28. In LGM-Dairy, producers can choose from a range of feed values Change in feed ranges allows for higher feed levels Default values of 0.5 bushels of corn and 4 pounds of soybean meal per cwt. of milk remain the same Feed Ranges

  29. Current range: Corn: 0.13 to 1.04 bushels per cwt. of milk Soy Meal: 1.61 to 12.85 pounds per cwt. New range: Corn: 0.13 to 1.36 bushels per cwt. Soy Meal: 1.61 to 26 pounds per cwt. Feed Ranges

  30. Premium subsidies provided for “pooled coverage” – insuring milk in two or more months during the insurance period No subsidy is provided if the policy is only insuring milk in one month Premium Subsidies

  31. Subsidy Table

  32. Example Premiums From Sept. 2010 premium rates, insuring 1560 cwt. of milk, 20.5 tons of corn, and 6 tons of soy meal in May and June 2011

  33. Example Premiums

  34. Higher deductibles allowed, up to $2.00 per cwt. Premium will be due at the end of coverage Feed ranges are increased Premium subsidies will be available for policies covering multiple months Changes effective Dec. 17, 2010 Quick Review on LGM-Dairy

  35. LGM Policy Information http://www.rma.usda.gov/livestock/ LGM-Dairy Decision Tools http://future.aae.wisc.edu/lgm_dairy.html LGM-Dairy Information

  36. Thank you for your time!Any questions?My web site:http://www.econ.iastate.edu/~chart/Iowa Farm Outlook:http://www.econ.iastate.edu/outreach/agriculture/periodicals/ifo/Ag Decision Maker:http://www.extension.iastate.edu/agdm/

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