New Mexico Drought Matter of Perspective, Risk

By | September 16, 2011

Perhaps it’s a matter of perspective. If you’re a cattle rancher in New Mexico without enough grass to feed your stock, it’s a drought. If you’re a satellite orbiting a couple of hundred miles away in space, things may look pretty green down on planet Earth.

That difference of opinion has driven New Mexico cattle ranchers into a potential conflict with the U.S. Department of Agriculture (USDA) over a new federally subsidized insurance policy designed to provide drought protection.

Despite record heat and record dry conditions in parts of the Southwest, some satellite imagery shows New Mexico’s “greenness index” doesn’t qualify ranchers there to collect on their policies, which cost several thousand dollars annually.

From the perspective of the USDA’s Risk Management Agency, which oversees the pilot program to provide drought insurance, it’s a matter of certain policyholders being at the wrong place and the wrong time—and not understanding how their policies work.

Due to the drought, ranchers have been selling off record numbers of cattle because they can’t feed them, and they’re looking for financial help from insurance policies they purchased that are part of a pilot program for New Mexico and seven other states administered by the RMA.

The program uses data and satellite information to decide whether a payout should be made, and it counts all “biomass” in an area, including trees and weeds, under a “greenness index.”

According to Matt Rush, executive director for the New Mexico Farm and Livestock Bureau, that index omits another index that he and others believe should be an important part of the drought-no drought equation: heat.

“What we’ve found is the heat index had been taken out of the calculation,” Rush said, adding that the heat and drought conditions in the state are unprecedented. “What they’re calling this is the 100-year drought for us. And it has been excessively hot.”

That drought has laid waste to ranches in New Mexico, causing cattlemen to go to market with their stock in droves, Rush said.

At the livestock auction in Clovis, N.M., the state’s largest cattle auction, they typically see about 1,500 head a week being sold. “They’re currently averaging 4,500,” Rush said. “Our total cow population is decreasing immensely. Ranchers are selling breeding stock.”

There were 95 such drought insurance policies sold in New Mexico, all through private insurance agencies, and guaranteed through USDA, Rush said.

Very little money has been paid out for losses related to the drought, he said.

Leon Porter, owner of Porter Ranch, a 17,000-acre spread in central New Mexico, has seen the grass on his property, as well as his breeding stock, literally decimated. He has not been compensated for his losses.

“We have probably less than 10 percent of the ranch that we’ll be able to utilize and operate on,” Porter said. “Usually the entire ranch is covered with grass.”

Typically from 55 to 60 acres of grass per cow is needed. Up until last year Porter Ranch kept on average 350 head of mother cows. Last year, when things started to get dry, Porter cut that number down to 240.

“Now, this year, we’re probably going to cut it back to about 50 or 60 head,” he said. “In the long run, I don’t have the mother cows to produce a calf crop. Without a calf crop I don’t have an annual income of any sort. It puts me in a situation where I may eventually end up having to sell the ranch.”

Porter’s total premium this year was $26,000, and his share after the government subsidy was $12,000.

Porter said he garners about $600 for a calf at auction. That means the first 20 head he sells goes to pay his premium, an investment that is now worthless to him, he said.

Porter’s take on this: he was duped.

“We bought it as what it was represented as, drought insurance, at the time,” Porter said. “When it came time to get our evaluation, they claimed that it wasn’t drought insurance. It was just misrepresented.”

Affected ranchers like Porter and Rush say the RMA’s refusal to allow the claims to be paid hinges on a fine line between what they believe was drought insurance and this “greenness index” used by the RMA.

Porter, Rush and others have been working to make changes to the program changed, and among the first steps is to find out what went wrong with it, he said.

“We’re trying to figure out why it’s not helping us when we’re in the middle of the worst drought in New Mexico history,” Porter said. “In 2010 we didn’t have any vegetative growth or grass production. In 2011 we’ve been in even worse shape due to the drought. I’m going to end up probably selling about 75 percent of the heard.”

Others involved in the meetings are professors from New Mexico universities, several ranchers, RMA, a few insurance agents and the guys who developed the program.

While RMA is actively involved in looking at how to improve the program, it’s not just a matter of whether the policies cover drought or “greenness,” an RMA spokeswoman said.

“It is a pilot program, and naturally we have to tweak it and see how it works,” said Shirley Pugh, director of public affairs for RMA. “It works well in some places. It does measure all the greenness, including things that the cattle may not eat.”

But beyond the debate over whether the grass is greener, there are risk management elements that tell a more complex tale within this ongoing drought saga.

When the policies were sold, ranchers were offered the choice of which seasons they wanted to be covered, obviously with costs of coverage varying by season and place.

“Different intervals have a different premium,” Pugh said. “The time interval that you insured would make the difference.”

Amy Roeder, a risk management specialist with RMA, along with RMA Director Bill Murphy, earlier this month visited the ranches and held a meeting with the policyholders, a meeting that drew with well over 100 in attendance, she said.

While she acknowledged the program needs work, and she witnessed first-hand the devastation wrought by the severe conditions, Roeder believes problem No. 1 is a lack of understanding about how the policies work.

“I would say that they did not understand,” she added.

What those policyholders seemed unclear on was their policies only covered certain months and that it was up to them to choose carefully those particular months utilizing data they were provided showing when they were at greatest risk, Roeder said.

In fact, many of the policyholders were not insured for the driest, hottest months, she added.

For the January-March time period, 14 percent of the policyhoders by acreage in New Mexico were insured. According to the RMA, the percentage by acreage the rest of the policyholders were insured for during the three-month periods is as follows:

  • February-April: 3 percent
  • March-May 3 percent
  • April-June 29 percent
  • May-July 6 percent
  • June-August 8 percent
  • July-September 24 percent
  • August-October: 3 percent
  • September-November: 1 percent
  • October-December: 9 percent

RMA used Natural Resource Conservation Service data that showed policyholders the best way to measure 2001 forage growth if you’re in the southern basin plains and mountains, Roeder said.

In the southern basin plans and mountains, the largest amount of forage growth is July (18 percent), August (28 percent) and September (25 percent), according to Roeder, who said the policyholders should have chosen to insure months with the greatest likeliness of forage growth to best protect themselves.

Pugh said RMA will continue working on the program to make it work better, but that ultimately any program they come up with must be used correctly.

“They were insured without using the program to its best advantage,” Pugh said, adding that as the July-September time period winds down, many of those policyholders may expect to be reimbursed for losses.

New Mexico Farm and Livestock Bureau’s Rush has been in constant contact with lawmakers and officials at state and federal levels, as well as RMA, and all parties have been receptive to calls to change the program, he said.

“We will try to get everybody on the same page,” he said. “The producers paid into the program, bought into the insurance with the understanding that it would protect them during adverse conditions,” Rush said. “I don’t think anyone is trying to cheat anyone here, I just think there is a flaw in the system somewhere. Up to this point we have been communicating with each other. We are trying to work though it without going to litigation, but obviously that is on the table.”

Topics Agribusiness Policyholder Mexico

Was this article valuable?

Here are more articles you may enjoy.