Alternatives for insuring hay in 2014

Farm Forum

BROOKINGS, S.D. – Much of the alfalfa hay produced in South Dakota in 2013 was covered by Forage Production insurance. The amount of insurance totaled over $100 million for the crop year. While hay prices have tapered off in recent months, they set an all-time high marketing year average price of $221 per ton in South Dakota for 2012-2013, said Matthew Diersen SDSU Extension Risk/Business Management Specialist.

“Producers in South Dakota covered more acres in 2013 with Forage Production insurance than in any other state. However, about half of the 1.78 million acres were not covered by Forage Production in 2013,” Diersen said.

Diersen added that many producers are self-insuring much of the alfalfa risk.

“The coverage level typically purchased remains quite low compared to other crops,” he said. “About one third of insured acres have been covered with Catastrophic Risk Protection (CAT). The cost for CAT is low, but the payouts are infrequent and low as well,” Diersen said.

When the coverage has been bought up using the Actual Production History (APH) plan it is often at the 50 percent yield election level. He explained that the average outlay across all South Dakota APH policies in 2013 was about $12 per acre.

The deadline to purchase or change coverage for 2014 is Sept. 30, 2013. While it only covers yield loss, Diersen said the price election level has been increased with higher market prices.

“In 2014 the price election is $210 per ton for alfalfa and alfalfa-mixed hay. The higher price election level and continued high premium subsidy rate may make coverage more attractive to those self-insuring. Those that have been buying coverage may look to lower the election level if the protection provided remains adequate,” he said.

Noninsured Crop Disaster Assistance Program & Rainfall Index Coverage

Other hay in 2013 totaled 1.35 million acres in South Dakota. Non-alfalfa hay can be insured with Noninsured Crop Disaster Assistance Program (NAP) coverage from the Farm Service Agency or with Pasture, Rangeland, Forage (PRF) – Rainfall Index coverage from crop insurance agents.

Diersen explained that NAP covers farm-level yield losses. PRF covers against precipitation shortfalls in regional grids.

“PRF can also cover alfalfa,” he said.

New for 2014 crops is Rainfall Index – Annual Forage insurance, which could be used to insure a newly-seeded hay crop that is not yet eligible for Forage Protection coverage.

“None of these products offer the revenue protection common to many other crops,” Diersen said. “However, for the commercial hay grower selling the majority of production, there is a natural hedge in place.”

As production is reduced in a region, Diersen said there is still a tendency for prices to increase. This partially lowers revenue variability. For the hay grower feeding the majority of production, the coverage is lacking as higher feed replacement costs are not offset by higher indemnity levels.

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