Jenny Ifft, Agricultural Policy Extension Specialist
Nearly all of Kansas is currently experiencing abnormally dry or moderate drought conditions. For producers who grow annual crops for the purpose of feeding cattle or other livestock, Annual Forage Insurance (AFI) is a tool to manage drought risk.
What is it?
Annual Forage Insurance is a rainfall index insurance product that is part of the Federal Crop Insurance Program and can be purchased from any crop insurance agent. Payouts (indemnities) are triggered by one thing: less precipitation than the historic average, within two-month periods during the growing season. In other words, AFI provides protection against relatively low rainfall levels. It is similar to Pasture, Rangeland, and Forage Insurance (PRF) but coverage is not year-round.
For the 2024 crop year (deadline of July 15, 2023), over 335,000 acres were enrolled in AFI in Kansas.
Who can use it?
Nearly anyone who produces an annual crop that is fed to livestock, whether it is grazed, fed as grain, used for silage, etc. can use AFI. This product may be of interest to producers who either cannot use regular multi-peril crop insurance or are looking for alternatives.
What time periods are covered?
The annual deadline for AFI is July 15. An AFI policy purchased by July 15, 2024, would cover annual forage crops that are planted anytime from August 1, 2024, through July 31, 2025. A producer does not have to insure all annual forage crops grown on their operation.
What are the key characteristics of Annual Forage Insurance?
- AFI is “area insurance”, not farm or field-level insurance. Instead AFI pays out based on estimated precipitation in a “grid” or an approximately 14 X 16 square mile area. There are typically 6-10 grids in a county. Producers should understand that there can be situations where (a) they have low rainfall but their grid does not and thus they receive no payouts or (b) they have sufficient rainfall but their grid does not and they get a payout anyway. These types of situations are less likely to occur in extreme drought periods, when payouts are highly likely.
- AFI covers precipitation (rainfall) shortages during 4-6 months within the producer-selected growing season. Growing seasons are 7-month periods that follow the month in which the crop is planted. Three 2-month intervals within the growing season must be selected and assigned weights (for example, 30%, 30%, and 40%). No single month can be insured twice (overlap) within a growing season and no interval can have a weight higher than 40%. One exception is that 50% weights are allowed for intervals in growing seasons 10, 11, and 12, which begin in June, July, and August, respectively.
- Producers must select a coverage level of 70-90%, similar to other types of crop insurance. The coverage level determines when a payout is made. For example, a policy with a 90% coverage level makes payouts when precipitation is less than 90% of the historic average. Producers that select a higher coverage level will pay a higher premium but will be more likely to receive a payout and vice versa for lower coverage levels.
- Producers must also select a productivity factor of 50-150, which influences the value of the policy or the amount of payouts. All counties have a “county base value” for AFI, which varies across the state based on average forage yields or the typical per acre value of a forage crop. County based values in Kansas range from about $476 per acre for Doniphan County to $300 per acre in Morton County. The productivity factor scales county base values from 50% to 150%, for a range of about $150-$715 per acre. Scaling up will increase the premium and the amount of potential payouts and vice versa for scaling down. Producers who (1) want to purchase higher or lower protection, (2) want to manage or lower premium costs, or (3) want protection that can reflect lower or higher yielding/performing fields in a particular county may want to consider adjustments to the productivity factor (the default is 100 or 100%).
- Payouts are approximately determined as follows. Suppose you are a producer in Morton County, with a county base value of $300 per acre. You select coverage level of 90% and a productivity factor of 150, so your AFI guarantee is $300 X 1.5 X .9 = $405. The guarantee is the value of the crop that is insured. You give the Sept-Oct interval a weight of 40%, which means the guarantee or protection for the interval is $405 X .4 = $162. Suppose the precipitation index is 0.75 during this interval, or precipitation (rainfall) is 75% of the historic average. In this case, your payout is $162- ($300 X 1.5 X 0.4 X .75) = $27/acre. $27/acre is the payout for one of the required 3 intervals for this hypothetical policy.
How much does it cost?
Costs vary based on policy selections and location. For the 2024 crop year, the average producer premium in Kansas was $23.67 per acre. However, given the wide range of policy choices and characteristics, there is a wide range of potential premiums from a few dollars to as high as $60 per acre. The estimated/hypothetical premium for the Sept-Oct interval (only) in the example above (5) is $19/acre; this is a relatively large/expensive policy.
Does it pay?
In the long term, a producer should receive more in the payouts than they pay in premiums. This is because the Federal government pays for part of the premium costs. However, a few years can pass without a payout and payouts are not guaranteed for an individual producer. For the 2022 crop year, Kansas producers paid a total of $2.8 million in AFI premiums relative to $10.3 million of payouts. For the 2023 crop year, producer premiums were $7 million and payouts were $22 million.
If I’m interested or have more questions, what should I do?
Talk to a crop insurance agent as soon as possible, especially if it is your first time using the policy. There are several choices that need to be made. Some agents provide decision tools to help producers select a policy that best meets their risk management objectives. Several additional resources are listed below.
If I’m not interested, how else can I manage drought risk for annual forage crops?
Producers manage risk in many ways, including diversification of farm or ranch enterprises and off-farm income. Further, there are many production and feeding practices that can help manage drought risk, for example carefully selecting the type of annual forage crops.
Additional Resources
AgManager.info articles and examples
Overview of Recent changes
Crop and Livestock Insurance Agent Locator
https://www.rma.usda.gov/informationtools/agentlocator
USDA Decision Tool
Dual Use Option Resources
(Dual use allows producers in certain cases to use both AFI and multi-peril crop insurance (yield or revenue protection policies) for crops that are both grazed and harvested for grain)
Dual Use Option Information
https://afpc.tamu.edu/research/publications/files/709/BP-21-02.pdf
Annual Forage Insurance Program-Dual Use Option | RMA (usda.gov) https://www.rma.usda.gov/en/Fact-Sheets/National-Fact-Sheets/Annual-Forage-Insurance-Program-Dual-Use-Option
This material is based upon work supported by USDA/NIFA under Award Number 2021-70027-34694.
