South Dakota alfalfa hay growers carried nearly $100 million in Forage Production insurance in 2013 and insured more acres than their counterparts in any other state.
Even so, about half of the state’s 1.78 million acres were not covered by Forage Production, according to Matt Diersen, risk/business management specialist with South Dakota State University (SDSU) Extension.
Many producers are choosing to self-insure much of their alfalfa risk, notes Diersen in a recent post on SDSU’s iGrow website. When they do opt for crop insurance, the coverage level purchased remains low compared to other crops. “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.”
When the coverage was bought using the Actual Production History (APH) plan, it was often at the 50% yield election level, he points out. The average outlay across all South Dakota APH policies in 2013 was about $12/acre.
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Changes are coming for 2014. The price election level has been increased to $210/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,” he writes. “Those that have been buying coverage may look to lower the election level if the protection provided remains adequate.”
Non-alfalfa hay, Diersen notes, 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. NAP covers farm-level yield losses. PRF covers against precipitation shortfalls in regional grids. PRF can also cover alfalfa.
Rainfall Index-Annual Forage insurance, new for 2014 crops, could be used to insure a newly seeded hay crop not yet eligible for Forage Protection coverage.
"None of these products offer the revenue protection common to many other crops," Diersen writes. "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, 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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