Ep. 66 Optimizing PRF Insurance for Southern Forage Producers: Lessons from Arkansas

00;00;00;02 – 00;00;23;11
Dr. Hunter Biram
Interval timing matters more than you might think with PRF. Drier counties gain the most with coverage selection, and the historical data isn’t always destiny. That and so much more on this episode of Morning Coffee and Ag Markets.

00;00;23;13 – 00;00;44;01
Dr. Hunter Biram
Well welcome back. We break down the latest research in shaping how producers manage risk across Arkansas and the southern region. And I’m your host, Dr. Hunter Biram. Well, today I’m going to be chatting with Mr. Walker Davis, tapping into new research on the Pasture, Rangeland and Forage insurance program, which is a program designed to protect forage producers from rainfall shortfalls.

00;00;44;03 – 00;00;59;20
Dr. Hunter Biram
Recent work by Walker, and company takes a deep look at how PRF performs across dry, average, and wet counties, uncovering when this safety net truly works best and when it may fall short. Man, that sounds awesome. Walker, how are you doing today?

00;00;59;22 – 00;01;07;15
Mr. Walker Davis
I’m doing great. Ready for, maybe a week or so of fall before it gets winter time. But I’m, I’m doing great. Happy to be here.

00;01;07;17 – 00;01;30;16
Dr. Hunter Biram
Walker. You know, last time that you were on the podcast was about a year ago now, actually, I think. And, you were talking about PRF and we just kind of talked about the ins and outs, and we had James Mitchell on the podcast, too, and talking about really, when is the, I think it was when, when should we expect to see the most indemnities and just kind of a PRF 101.

00;01;30;16 – 00;01;37;11
Dr. Hunter Biram
But if you wouldn’t mind, Walker, take a minute or two just to tell our listeners where you’re at now and, that you’re not at Arkansas anymore.

00;01;37;14 – 00;02;06;06
Mr. Walker Davis
Yeah, absolutely. I’m actually at the Oklahoma State University over in Stillwater. Finished up my masters and, graduate research assistant role over at the U of A back in August. And then started here, so I’m helping out with some research over at OSU while working on my PhD, so of course, still Arkansas in my heart, but, kind of trying to wrap up this chapter and get everything out for these producers

00;02;06;06 – 00;02;07;08
Mr. Walker Davis
we can.

00;02;07;10 – 00;02;24;07
Dr. Hunter Biram
Well that’s awesome, Walker, I am super impressed. And you and I have talked about this, but I’m super impressed that you are even doing additional work on top of your coursework right now. I think that just, is a testament just to how hard of a worker you are and how dang smart you are. So I really appreciate you still contributing to programing here.

00;02;24;10 – 00;02;36;03
Mr. Walker Davis
I appreciate it a lot. There’s definitely good weeks and bad weeks, and we’re only on week nine, so a lot more to come. But this is a lot more fun, at least for me, than the coursework. So it’s not real work.

00;02;36;05 – 00;03;05;24
Dr. Hunter Biram
Well, absolutely. Well I appreciate that and I greatly appreciate your time. So Walker, let’s just go ahead and dive right in. So let’s talk about interval selection strategy and what your research is finding. So your research tested several PRF interval selection strategies. You know, you had near peak forage months, basis risk leveraging. What were the key differences in how these strategies performed across, you know, dry county mean median county and a wet county in Arkansas?

00;03;05;26 – 00;03;34;02
Mr. Walker Davis
Yeah, absolutely. I’ll take a second just to do a little backstory. So this paper, kind of our mindset with it is with PRF being so differing with having those 238 grids on the state of Arkansas, and each PRF grid having those 11 intervals a year, which pretty much act as their policy, it’s really hard to do any blanket Arkansas applications where you say, just take this interval and this interval and you’ll be doing okay.

00;03;34;04 – 00;03;56;13
Mr. Walker Davis
So what, me and of course, you and all the professors of the University of Arkansas, what we sat down and did is we picked three different counties. We looked at the past 30 years and found the driest, the median, so the middle, and the wettest over the last 30 years. And those came out to be Boone County, Lee County and Polk County.

00;03;56;15 – 00;04;29;29
Mr. Walker Davis
And with PRF being that grid based system, we picked two grids in those counties that had the most acreage in the county. So the most representative, and with that, we wanted to see how those different areas and how those PRF policies in those areas performed across different situations. At that time, we have a little data limited. So instead of being able to do maybe over that whole 30 years, we did it over five years, the driest year, the wettest year, median year.

00;04;29;29 – 00;04;57;08
Mr. Walker Davis
And then your 25% or 75%. So we did those five different years across these three different precipitation level counties, and then found how PRF would have performed across five different collection strategies. Those two you mentioned near Peak Forge month basis risk leveraging along with Peak Forge protection, historical variation and simulation, profit maximizing. Definitely could have done a little more, creativity with the names.

00;04;57;08 – 00;05;21;25
Mr. Walker Davis
They’re a little similar. But to answer your kind of question, those key differences that we found were there was also some key similarities. But for our near Peak Forge month, which is one you mentioned, we did, based on UADA research as well as us looking at the NDVI, the normalized differential vegetation Index, which is a satellite looking at the grass on the ground, forage on the ground.

00;05;22;02 – 00;05;54;04
Mr. Walker Davis
We found that the months that had the historically most forage growth in Arkansas and forage levels was that May through August, which backed up what you had told us and looking at fact sheets there. So we wanted to look first for this first strategy near peak forage months across these three counties. We immediately signed the policy to that May, June, July, August interval, just to thoroughly ensure that that interval in which that forage was happening, because you would hope that that would do pretty good.

00;05;54;05 – 00;06;24;00
Mr. Walker Davis
You’re protecting against that forage. You would hope that it’s doing a good job protecting that. And where the basis for leveraging I was on here actually I think Hunter, it slipped your mind. We were on here back in June and we did another little podcast where we talked about, basis risk. And I don’t want to repeat too much of the past now, but we saw that the basis risk leveraging, which is the intervals that triggered at the same amount that forage said that should trigger pretty much.

00;06;24;03 – 00;06;49;10
Mr. Walker Davis
And those differed across all three of our selection counties, as well as our peak border protection interval, which is similar to the basis for leveraging of looking at trigger correlation. It was looking at NDVI, historical forage Index and seeing how that aligned with that rainfall index that PRF uses. So each of these strategies of course, unfortunately like I said, they differ.

00;06;49;10 – 00;07;12;02
Mr. Walker Davis
There’s no real one size fits all for Arkansas or any state. So first we saw this research. One big point that we saw was the performance worsened as the average precipitation on the target county increased, which really has led to a lot of further work we’ve done. And we’ll talk about that, I’m sure, here in a little bit. And then number two, that each strategy within the counties performed differently.

00;07;12;02 – 00;07;41;27
Mr. Walker Davis
So even though the peak forage protection, if you’re looking at the newsletter, performed the best in Boone County, that low precipitation county, it performed among the bottom half in Lee County as well as the worst in Polk County. So that was really interesting to us to see that across some of these, such as that peak forage protection basis for leveraging a profit maximum, there wasn’t really much consistency of success across those different counties where near peak forage months and historical variation, we did see some of that.

00;07;41;27 – 00;07;46;08
Dr. Hunter Biram
So Walker, to sum that up, what you’re saying is this is not a straightforward decision.

00;07;46;10 – 00;08;17;01
Mr. Walker Davis
Absolutely. It is extremely personal and grid specific, which is kind of funny when you look at the reasoning behind index based insurance programs. The goal of them is to be kind of easier to maintain and understand and work than your traditional crop insurance programs, because there’s not the, adjusting and maybe human bias in there, but you’re also losing that farm level data, so you’re known to do it on a grid basis, which is already not going to be necessarily always the most representative.

00;08;17;04 – 00;08;35;19
Mr. Walker Davis
But then you’re also having to choose throughout the year which intervals are going to do the best protection for you, as well as how some people use programs looking to see which ones maybe trigger the most or don’t trigger often at all. And even if that would intuitively make sense to enroll in those that you might have to stay away from.

00;08;35;19 – 00;08;54;26
Dr. Hunter Biram
Yeah, and, you know, going back to the newsletter, and to your thesis and this may be in one of our papers that we are about to have under review if, if I’m not mistaken, but. Well, but what you’ve got here, just to rehash, you’ve got five different objectives for a farmer who’s wanting to get pasture, rangeland, forage or PRF crop insurance.

00;08;54;26 – 00;09;16;01
Dr. Hunter Biram
Which, by the way, folks, the deadline is December the 1st. That’s why we’re talking about this now. So we’ve got December the first coming up. PRF is on forage producers’ minds, cattle producers’ minds. And so they’re figuring out, like, you know, how do I manage risk going into 2026? And so you have the near peak forage months, which you said, you know, UADA would show that in Arkansas and probably in most places across the South, at least, you’re looking at the May through August window.

00;09;16;02 – 00;09;27;15
Dr. Hunter Biram
That’s going to be when most of the forage is going to be produced. You also have peak forage protection, and that is going to be based on rainfall, correct? So like if there’s the least amount of rainfall, you’re going to be protecting the most forage?

00;09;27;15 – 00;09;47;05
Mr. Walker Davis
Yes, sir. We kind of use the regression style analysis to look at those rainfall index values and compare those to the forage index and found which intervals aligned and correlated the best with that peak forage index, that may through that August window.

00;09;47;07 – 00;10;04;29
Dr. Hunter Biram
Yeah. And so then the third one then is basis risk leveraging. So that’s going back to, and I apologize, that totally slipped my mind. A lot has happened since June. But back in the summer when you and I chatted. Yeah. So when you and I were chatting back in June, we were talking about this. You know, if you’re in a in a wetter county, this might not be the best thing for you.

00;10;04;29 – 00;10;18;21
Dr. Hunter Biram
But if you are in a pretty dry county, you know this will be a good product for you because as you’ve shown just high level, we’re seeing that in some areas there’s actually more and more rainfall happening over time instead of less and less. And by and large, as across all of Arkansas, but not in every single county.

00;10;18;21 – 00;10;32;08
Dr. Hunter Biram
But for those counties where that rain is trending upward, I mean, if you’re trying to manage rainfall risk, chances are you’re actually going to get more than you expect. If the expectation is to get more and more rainfall. But if you’re in the drier county, the expectation is to get less and less rainfall. So I think that this basis risk

00;10;32;08 – 00;10;46;20
Dr. Hunter Biram
leveraging, to me is very interesting, especially since there’s such a big gap. You’ve got February/March and then August/September at least in the case of Boone County. Then we move into historical variation and, and give the folks maybe a 1 or 2 sentence summary of what historical variation would represent.

00;10;46;21 – 00;11;07;17
Mr. Walker Davis
Absolutely. So that’s back looking at those rainfall index values, which of course, everything in PRF is centered around those. And that’s what those triggers are based off of. So what we did use those rainfall index values. And we found over the last 30 years kind of keeping that 30 year time frame, which intervals had the most variable rainfall.

00;11;07;17 – 00;11;35;22
Mr. Walker Davis
So what was the most volatile. And it was consistent across all of our target grid. That was that September, October, November and December were by far the most variable. Interesting enough. And when you’re kind of looking at your PRF policies and enrolling in those, those are the most expensive intervals to enroll in as well, which in turn make sense that they’re the most risky in terms of volatility and rainfall that those two would be the most expensive to insure in.

00;11;35;22 – 00;11;51;21
Dr. Hunter Biram
That is fascinating to me. You know, that that goes back to what we were talking about last fall. You know, if you were to look at the graph of what the indemnities look like for each interval across time within a year, that is remarkable to me. So, yeah, so historical variation, the most risky months have the highest probability of indemnity.

00;11;51;21 – 00;11;58;14
Dr. Hunter Biram
And thereby the highest premiums. That’s going to be September/October and the November/December. Then simulation profit max. Are we just talking about net indemnities at that point?

00;11;58;15 – 00;12;33;05
Mr. Walker Davis
Not, not wholly. This was really what we initially thought was a really good idea. And it just didn’t work out, which in the long run helped us to get some more meaningful work happening. But what we did is we looked at those past RI’s and using the, past RI’s as your base simulated 10,000 iterations for each of these different grids to see what those RI’s could be. Applied our base rates to them, our premium rates, to try to game the system, figure out which two intervals maybe were underestimating the risk.

00;12;33;06 – 00;12;51;18
Mr. Walker Davis
So you had that lower premium than maybe it was actually deserved to try to give a little extra chance of that policy working in your favor. And it unfortunately did not work very well at all, as you can kind of see in table two on the newsletter, if you’re looking along, it did okay in that dry county of Boone, it was the second best.

00;12;51;18 – 00;13;13;27
Mr. Walker Davis
And then you go down to, in Lee County, profit maxing was the fourth best and then I believe it follows suit with Polk. On average across those three counties. And our target years did do okay. It was breakeven. However, it did not work as much as we hoped. And that actually, due to some more research we’ve done, came down to those changing rainfall trends.

00;13;13;27 – 00;13;27;07
Mr. Walker Davis
And these RI, rainfall indexes, being based all the way back to 1948, kind of treating rainfall as stationary and align almost well, really, it does have its ups and downs. When we get different cycles.

00;13;27;12 – 00;13;42;25
Dr. Hunter Biram
That is so interesting to me. So, Walker, you know, as we wrap up here, let’s just get back to table two. And so let’s just say I’m a farmer and I want to get PRF. And let’s say that, you know, I think it’s been pretty dry in my county lately. What would you say is the best PRF strategy?

00;13;42;29 – 00;14;03;01
Mr. Walker Davis
I think based on what we did with this paper and what some would say not really happening to know too much past knowledge, because it’s a lot to ask to know your basis risk necessarily in your grid and going to find that. But the two best performing across these three different scenarios were definitely our near peak forage month and our historical variation.

00;14;03;27 – 00;14;30;27
Mr. Walker Davis
If you’re trying to get into PRF and you’re wanting to do the program right, like everyone hopefully is, and using insurance truly as that safety net helping your farm financial risk. The near peak forge month definitely is sticking out and that’s going to be insuring in that May, June, July and August where that forage is actually happening, even though it’s not necessarily a perfect relationship like we’ve talked about before between rainfall and forage, I’m not getting an inch of rain.

00;14;30;27 – 00;14;52;27
Mr. Walker Davis
And then the full effect of that rain happening on our forage the next day. It is definitely an over time thing. So it’s not going to be perfect, but based on what we’ve seen is that did yield fairly well with that being profitable on average, definitely the most across these three counties. And then that second strategy, maybe thinking about the historical variation, like I said, that’s typically in those fall months across Arkansas.

00;14;53;04 – 00;15;12;26
Mr. Walker Davis
And those are a little more pricey if you’re getting into it. But we’re very fortunate to have subsidies, as we do in crop insurance, and PRF is very heavily subsidized at the 90% coverage level, which is the one I recommend by far the most insured nationwide in, there’s a 51% subsidy so that producers only pay 49% of that premium.

00;15;12;28 – 00;15;23;29
Mr. Walker Davis
That’s something to look at in those fall months. But really, that near peak forage month is definitely one that I would strongly recommend for those looking in to doing a policy to do to accurately cover that forage.

00;15;24;02 – 00;15;49;22
Dr. Hunter Biram
So, Walker, it sounds to me like we have two primary ways to think about managing this risk. One is if you’re going to manage when you’re production is the most you want to put 50% of your policy in the May/June window, and 50% of the policy in the in the July/August window. And then if you want to base it on the riskiness of the historical variation and the rainfall, which would translate into the highest probability of an indemnity, then you’re looking at 50% in September/October and 50% in the November/December windows.

00;15;49;27 – 00;15;50;19
Mr. Walker Davis
Absolutely. Yes, sir.

00;15;50;19 – 00;15;54;04
Dr. Hunter Biram
Sweet. Well, Walker, do you have any other comments for the listeners today?

00;15;54;10 – 00;16;15;26
Mr. Walker Davis
I strongly recommend looking into the program you know, Arkansas, is right at number 25, last I looked at acres enrolled in PRF and there’s a lot of success in this program. It is the most enrolled FDIP federal crop insurance program in the US. I think in 2024, I saw on the summary business it was right around a quarter billion acres.

00;16;15;26 – 00;16;34;25
Mr. Walker Davis
So it is working for a lot of people. And it is a good way to protect your forage as well as isn’t a complicated way. No one’s trying to confuse you. It’s, we’re very fortunate for our subsidies as well as to have a program that’s out there helping farmers and be your cattle farmers, livestock or just your hay forage producers.

00;16;34;25 – 00;16;51;06
Dr. Hunter Biram
Walker, thank you so much for joining us today. Well, that was a great discussion on how strategic interval selection can make or break the effectiveness of PRF insurance. You know, this research reminds us that a one size fits all approach does not work, and that local rate variability and timing do matter. If you’d like to learn more, check out the full article:

00;16;51;06 – 00;17;16;14
Dr. Hunter Biram
Optimizing PR of insurance for Southern Forage Producers, Lessons from Arkansas. And other newsletters on Fryar, f-r-y-a-r, dash risk dash center dot UADA dot edu slash podcast slash podcast Dash newsletters, [fryar-risk-center.uada.edu/podcast/podcast-newsletters], you can also check out all previous podcast episodes at fryar dash risk dash center dot UADA dot edu slash ag Dash markets [fryar-risk-center.uada.edu/ag-markets]. Stay tuned for the market report. Bye bye now.