Can You Hedge Against A Drought?

Pasture, Rangeland and Forage insurance payments provides protection against financial disaster due to drought.

Larry Stalcup

August 13, 2013

3 Min Read
Can You Hedge Against A Drought?

Even with needed rainfall much of this year, Oklahoma rancher Chuck Coffey hasn’t forgotten the dreadful drought that parched pastures in 2011-2012. And he’s counting on Pasture, Rangeland and Forage (PRF) insurance to provide a partial hedge against drought the remainder of this year and in 2014.

Offered by USDA’s Risk Management Agency (RMA), PRF enables ranchers and hay producers to insure a percentage of the average rainfall in selected two-month intervals throughout the year. USDA subsidizes up to 59% of the premium.

The deadline for applying for 2014 coverage is Nov. 15, and it’s available to all counties in Texas, Oklahoma, Arkansas, Kansas and many other states listed in RMA’s rainfall index map. The policy follows the calendar year. It provides protection against lack of rainfall on grazing land and hayland, even if it rains substantially in some months and none in others.

“We have PRF insurance in place for 2013,” says Coffey, who runs 500-600 mother cow son a southern Oklahoma ranch near Davis. “We had good moisture in the January-February two-month interval, but we were dry in March and April. We collected 50% of our premium that was due for that period. You get paid back for two dry months regardless of how much rain you received in previous months.”

PRF premiums and payouts are based on county rainfall grids mapped by the National Oceanic and Atmospheric Administration (NOAA). Premiums can range from under $1/acre to $2 or more on grazing land and $8-$15/acre on hayland. 

Hayland has a higher per acre value, so the premium is higher but the claims also are much higher in the event a claim is triggered, says Marc Shepard, with Hargrove Ranch Insurance, Snyder, TX. It’s one of many agencies that contract with RMA to handle PRF and other ag policies. Claims are calculated and paid within about 60 days, he says.  

“It’s a bittersweet subject, but it's a tool that can help ranchers by providing immediate relief to help cover increasing feed costs throughout the year,” Shepard says. “Generally, it requires only one, two-month period receiving only 35-45% of average rainfall in your area to cover the premium for the entire year.”

Coffey, also a livestock and forage consultant for the Samuel Roberts Noble Foundation in Ardmore, OK, ranches on rugged, hilly country with native bluestem grasses. Typical stocking rate is one cow/20 acres.


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“We actually started in ’11 at one cow/15 acres because 2010 was such a good year for rainfall,” he says. “But we quickly saw we were getting in a bind. We went from 800 cows down to 600, and early weaned in July. In ’12 we cut it back by another 100 cows, down to about 500 and again early weaned.

“By taking PRF payments and dividing total collections by number of cows, we were paid back over $200/cow each year. It doesn’t pay on a per-cow basis, but that’s the insurance return we received.”

PRF payments can’t compensate for total cow liquidation, dry stock ponds or other losses caused by drought, but they may help hedge against financial disaster, Coffey says. For more on PRF, insurance agents in your area and rainfall indexes and the application process, go to


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