Insurance for the grass could help cattlemen prepare for drought years
September 19, 2017
When it snows, we push snow and feed cattle. When it rains, we check cows, then put up hay as soon as the grass or alfalfa dries out. When the wind blows we work in the shop, and when the wind stops blowing we check on our windmills to be sure the cattle have water.
But what do we do in a drought? After we've checked water for the hundredth time and fixed fence until we can't stand to pound another staple, we worry.
We calculate and we figure and we check market reports. We've already checked the weather report and can't bear to look again.
Should we wean the calves early? We've barely got enough feed to get the cows through the winter.
Do we sell cows? The market is down.
Do we take the financial hit of selling 250 pound calves in July instead of 550 pound ones in October?
Recommended Stories For You
Eric Iversen of rural White River, S.D., said he would like to see some kind of insurance for grazing land that can help cattle producers prepare and manage through years like this one.
"There is a need for multi-peril grass or pasture insurance modeled similar to crop insurance," he said. "If we can show what stocking rates on our specific ranches are and we know what normal productivity is we should be able to insure against revenue losses experienced from things such as drought, fire, hail, grasshoppers or whatever the disaster is. That way we can be protected so that if disaster strikes our only option isn't to just sell the cows until pasture conditions improve.
"If you have purchased grazing lands or rent it by the acre, reducing stocking rates or not being able to graze for the entire grazing season due to drought also has an economic impact that could be minimized through pasture insurance. Many of us have spent years building genetics in our herds which makes it tough to replace them with similar cattle after a drought, not to mention selling due to drought usually results in depressed prices and when it is time to restock demand is high."
Buying cattle is a huge investment, and with market fluctuations, they can easily drop to half the purchase price in a year or less, Iversen said.
"I didn't pay $3,000 for a bred heifer a couple of years ago, but some people did. We can't set the market or choose the value at the time that we are trying to build up our numbers. Now those 3- or 4-year-old cows are worth half that much. Paying for that cow is tough especially if you have to sell her or reduce stocking rates to manage through drought. It won't take long for that to break some people."
Insurance is for unexpected tragedies, he said, and while crop producers can buy insurance to protect themselves from a disaster, and other businesses can insure against fire or other natural disasters, ranchers don't have the same opportunity for weather-related disasters.
"I'll get through this year. I learned from a young age to plan ahead for times like this, but there are younger producers who stuck their necks out to buy expensive cows or heifers, that might not weather this disaster."
Iversen, who ranches in western Mellette County, S.D., said he believes improvements also could be made to existing drought resources.
Rainfall insurance, for one. MEASURING RAINFALL
"It doesn't adequately reflect actual grazing losses," he said, adding that the data that determines deviation from normal rainfall is based on a 12-by-12-mile-grid, which may or may not accurately depict one ranch's rainfall. "The grids are too large and the data they use to collect precipitation doesn't always accurately reflect actual rainfall that hit the ground. Also, amount and timing of rainfall should be weighted because a 3-inch gully washer occurring in an hour does not have the same impact on minimizing drought as six separate one-half-inch rains occurring periodically throughout the month."
Iversen said he is on the west end of a grid and while the rain has fallen just east of him, it has missed his ranch. So even though he purchased rainfall insurance in anticipation of a hot, dry summer, he will not receive an insurance payment. "It was not my neighbor's pasture I had intended to insure. And when the bill was sent for the premium it came to me."
Taylor Mohnen, an agent and partner with Crew Agency LTD, in Philip, S.D., confirmed that rainfall insurance is indeed dependent on a 12-by-12-mile grid and uses only National Weather Service data. It is not drought insurance, he stressed, but is an insurance based on deviation from normal rainfall in the two-month-period (or periods) in the policy. A producer chooses to insure any two-month period, or periods or can insure for the entire year, in two month intervals.
"We did have some questionable areas this year that we thought should have paid more. We brought it to RMA's (Risk Management Agency) attention and told them to look at the drought monitor. What they told us is that drought is a long-term problem — and this insurance is for a two-month snapshot."
Most of the counties Crew Agency serves are equipped with sufficient reporting stations, but accurate data in the northwest part of the state, including Harding and Perkins counties, can be tough to access.
"They need to collect from the three stations closes to you to get your grid information. They can only use National Weather Service data, and in the less populated areas they might have to go 25 miles in one direction to get a rain measurement," Mohnen said.
He would like to see smaller grids — like 3 miles — but Mohnen doesn't think that will ever happen.
Mohnen said ranchers can insure their hayland or pasture at a level between 70 to 90 percent deviation from normal rainfall. A federal subsidy covers between 51 to 59 percent of the insurance premium, depending on the level of coverage a producer chooses.
Crew Agency also offers rainfall insurance for annual forages such as millet or sudan grass, but the deadline for insuring those crops in 2018 has already passed.
Recently, Mohnen visited with RMA staff in Kansas City about some possible changes on the horizon.
While the options are not available now, he hopes they will be in the future. "We talked about improving the "drought map" (utilized by U.S. Departmenet of Agriculture's Farm Service Agency to determine federal drought program eligibility) so that it included a heat factor as well as rainfall. The other thing we talked about is adding some kind of drought endorsement on the rainfall index policy that would possibly pay out better in drought years."
What is the Drought Monitor Map?
The "drought map," officially called the U.S. Drought Monitor Map, established in 1999, is a map of drought conditions that is produced jointly by the National Oceanic and Atmospheric Administration, the U.S. Department of Agriculture, and the National Drought Mitigation Center (NDMC) at the University of Nebraska-Lincoln. The U.S. Drought Monitor website is hosted and maintained by the NDMC, according to the website.
U.S. Drought Monitor maps are updated weekly with the new one coming out every Thursday morning based on data through the preceding Tuesday. The map is based on measurements of climatic, hydrologic and soil conditions as well as reported impacts and observations from more than 350 contributors around the country. Eleven climatologists from the partner organizations take turns serving as the lead author each week. The authors examine all the data and use their best judgment to reconcile any differences in what different sources are saying.
From 2008 to 2012, South Dakota State University Climatologist Laura Edwards was one of the 11 drought monitor "authors," who gathered information and drew the maps.
In her current position, she submits information to help keep the maps as accurate as possible, at least for South Dakota.
She utilizes information gathered from people around the state, and she considers data from the National Weather Service, but their reporting stations are sparse in some areas, which can make it tough to create an accurate map.
Edwards said more reporting from farmers and ranchers across the state would be helpful.
Any individual can get online at droughtreporter.unl.edu and report as often as once per day. Folks can upload up to five photos, and describe the drought conditions. She said sometimes people report when they get rain, but they don't think to report that they didn't get rain. "Every data point counts. That's what I say. Even if it is reporting no rainfall."
Reporting on the drought reporter site is anonymous — the reporter just needs to include their home county.
Another option for reporting is the Community Collaborative Rain, Hail and Snow Network, which can be found at http://www.cocorahs.com, The information from CoCoRahs is also considered by the Drought Monitor authors, so Edwards encourages individuals to take the time to report, even if the report is "no rain."
"Zeros matter, then we know you are watching the gauge and you just didn't get any rain. If you don't report at all, we don't know if you didn't get rain or if you weren't home or whatever."
What programs are available based on the Drought Monitor Map?
Livestock Forage Program — USDA FSA offers disaster programs for those dealing with drought.
Jay Hochhalter, a program specialist in North Dakota who deals with conservation and livestock programs said that the Livestock Forage Program, which offers payments to help offset lost forage, is based on the U.S. Drought Monitor map.
The FSA programs are based on an individual county's designation on the drought map. "If a county is in a D2 drought for eight consecutive weeks, they qualify or if they are in a D3 or greater for at least one day, that triggers the program as well."
The amount of time a county is considered a D3 or D4 determines the number of payments producers are eligible for.
Emergency Conservation Program — The FSA also offers an Emergency Conservation Program which offers assistance in providing water to range cattle. "We can provide assistance to establish or create new water sources. We can do pipelines or wells, hook up to rural water, those types of emergency measures, where the water source dried up or became unfit for consumption."
Qualification for that program comes by way of a D3 designation on the Drought Monitor Map or a county rainfall of 40 percent less than normal or less, for the four previous months.
The program pays 75 percent of expense, he said.
Non-Insured Assistance Program — The FSA also offers a program called Non-Insured Assistance Program, known as NAP, which is an insurance for hay and forage, but producers must buy the insurance the year before.
If producers have a 2017 NAP policy, they should be sure to have their forages assessed for damages.
Yes, there is another drought map. The Secretarial Drought Designations Map shows counties that the secretary of agriculture considers to be in drought.
Ranchers in drought-designated counties qualify for two tax deferral benefits, said Sheila Jackson with Rapid City, S.D.'s Casey Peterson and Associates.
451 e election — "They can defer for one year any excess income from cows or calves sold during the year due to drought," Jackson said.
1033 e election — "For breeding stock that they have to sell, they can defer income and replace those cattle within four years of the drought." Jackson said the deferral can be made in full or in part, depending on what works best for the producer.
Jackson also said that crop insurance proceeds can be deferred for one year for those producers within the drought designated areas.
BACK ON THE RANCH
A bit of Mellette County was included in the D3 designation recently.
Iversen isn't sure if he'll sell cows, buy more hay or do some combination of the two.
He said his rainfall insurance isn't going to pan out, and he hasn't had the adjustor out yet to make a determination on his NAP policy.
Iversen thinks tax dollars could be managed more wisely for emergency programs. He'd like to see the FSA programs more localized rather than county by county. "Droughts are local and FSA assistance should reflect that and be localized by targeting only those areas in need. Our government is in a budget shortfall. Why are we giving drought relief to someone putting up a third cutting alfalfa just because some part of that county was designated for drought relief? There could be people in counties not designated drought desperately in need of some kind of drought assistance. Maybe it's not me. I'll get through, but it's frustrating to see the waste."
When producers in wetter areas get the same payments or more payments than producers in drier areas, it can create an unfair bidding situation for available feed or pasture for rent. ❖