Risk Management Tools Coming

Cattlemen who have lost forage resources may have some new risk management tools to soften the blow of drought and other natural disasters. J.B. Penn, under secretary for Farm and Foreign Agricultural Service, Aug. 13 told NCBA members at the cattle industry’s Summer Conference in Denver about the insurance programs, all of which are entering the pilot test phase of their development.

Speaking to the Agricultural Policy Committee of the NCBA, Penn said the four new contracts were worth approximately $7 million. They were awarded to private companies to develop insurance products focused on pasture, range, hay and forage. The products will be field tested and reviewed for effectiveness by USDA.  If they pass the field tests and review, the products will be sold by private insurance companies nationwide. 

“These projects grew out of the National Cattlemen’s Beef Association’s work during development of the Agriculture Risk Protection Act of 2000,” said Bryan Dierlam, NCBA’s director of legislative affairs.  “Our members said they needed new risk management tools and we worked on their behalf to ensure that USDA and the marketplace responded.”

The programs would provide insurance to producers wishing to manage risk associated with feed costs due to loss of forage material from drought or other natural disasters.  The benefits these contracts offer are limited record-keeping requirements, no on-site loss adjustments, prompt payment of claims and the flexibility to apply a wide range of forage types and ranch types. 

With 55 percent of the nation’s land in pasture, range, forage and hay, these new contracts will use satellite technology and rainfall indices to measure conditions in specific parts of the country, some as small as approximately township levels.

The four contracts awarded are:

•    New Plan for Pasture/Rangeland and Dryland Hay – This is a dual index consisting of a satellite-based, vegetative index and a proxy crop, where a different crop with similar growth would be identified and used as a trigger to compute losses.  This plan doesn’t measure forage growth but indicates a deviation from normal.  Pilot projects will be done in select Western states beginning in the 2007 growing season (northeast Nevada, Wyoming, Utah, Texas and New Mexico).

•    Temperature Constrained Normalized Difference Vegetation Index  – This uses data derived from satellite-based, remote sensing imagery which describes seasonal growth dynamics for a target growth area.  Pilot projects will be done in 200 countries in six states beginning in the 2006 growing season  (Pennsylvania, South Carolina, Oklahoma, South Dakota, Colorado, Oregon).

•    Seasonal Growth Constrained Rainfall Index – This uses a weighted warm season/cool season index period based on the normal temperature at the start and end of the growing season and uses the National Oceanic and Atmospheric Administration rainfall data system.  The index will not predict real forage levels but estimates growth and deviation from normal.  Pilot projects will be done in 220 counties in six states beginning in the 2006 crop year  (Colorado, Idaho, North Dakota, Pennsylvania, South Carolina and Texas).

•    Precipitation Index – This will use a rainfall index gathered from local weather stations.  This contract follows the current Group Risk Plan.  Indemnity payments are not based on the individual’s ability to produce or the resulting production, but on a season-ending rainfall index value.  Pilot programs will be done in the 2005 growing season in Alabama, Missouri, New York and Wyoming. 

For more information, go to www.rma.usda.gov.