1. Normalized Difference Vegetation Index (NDVI) 1

2. Today’s Goal Rancher’s in New Mexico need an insurance program for their grazing and haying perils RMA is committed to meeting those needs Limited options Pros and Cons to both programs (RI/VI) Can program improvements be implemented for VI Limit available Index Intervals to assure production for the year is captured? What time periods should be offered? Do producers prefer RI? 2

3. Where we are today? Ten Index Intervals during a year ONLY Four intervals have been released to date Latest interval released to date: April-June First three intervals covered winter and early spring months that normally have very low NDVI readings as plants are dormant or beginning to green up Above average biomass carry over from 2010 Drought conditions in New Mexico, Texas, Oklahoma, etc. with catastrophic impacts Impacts to the industry as a whole 3

4. History The Agricultural Risk Protection Act of 2000 (ARPA) mandates programs to cover pasture and rangeland Vegetation Index - Pasture, Rangeland, Forage (VI-PRF) Rainfall Index - Pasture, Rangeland, Forage (RI-PRF) 4

5. Challenges – PRF Pasture, Rangeland, Forage Crop 1. Various plant species 2. Timing of plant growth 3. Lack of individual/industry data 4. Vast range of management practices across the industry 5. Publicly announced prices not available 6. Crop continuously harvested via livestock 5

6. History Statement of Objectives issued by RMA Contractors put together ideas and proposals 16 proposals received All were indexes Rainfall Index Vegetation Index RMA awarded four contracts 2 were Rainfall Indexes 2 were Vegetation Indexes 2 were implemented 6

7. Fact or Fiction Vegetation Index utilizes remote sensing measures for the grid. All biomass in a grid is included Does not measure grass only Deviation of normal for the interval (1989 to 2009) THIS IS NOT DROUGHT INSURANCE (Multi Peril) RMA does not use the term drought for the Vegetation Index program nor for the Rainfall Index program 7

8. Program Overview Area Plan of insurance Not individual coverage Losses are area based, not producer based Index – based on NDVI (a proxy for vegetation biomass) Not measuring actual individual production No loss adjustments, records, etc. More timely payments Does not reward poor management practices 8

9. Program Overview Rating Each grid, index interval, and coverage level is individually rated Encourages producers to select a scenario that best mitigates their operation/production risks Critical that producers select the correct interval for RI or VI Encourage producers to view rates, BUT that should not be the determining factor in selecting which index interval(s) to insure. 9

10. Program Overview Index Intervals Minimizes dependency on subjective pre-determined biomass growing seasons Elevation, climate, etc. found within an area Maintains consistency across the country Allows for regional and local variance Allows individual freedom to select appropriate intervals 10

11. Program Overview - VI Vegetation Index Program – Area Based Plan – Approximately 8 x 8 km grid vs. county – Utilizes satellite remote sensing data – Normalized Difference Vegetation Index (NDVI) – Deviation from Normal: 1989 to 2009, captures multiple perils – Review of historical indices and how they relate to your ranch is critical – Critical that peak of growing season is insured and not time periods outside those months 11

12. Grid Overview – VI Area of insurance = 8 x 8 km (~ 4.9 x 4.9 miles) 12

13. Program Overview – VI (&RI) Coverage Levels Percentages available: 90, 85, 80, 75, and 70 Consistent with other area programs Catastrophic Risk Protection (CAT) Not currently available Producers are eligible for NAP coverage 13

14. Program Overview Not required to insure 100% of acreage Forage utilized in the annual grazing or hay cycle can be insured without insuring all acreage All acres within a property may not be productive, e.g., rocky areas, submerged areas Provides additional flexibility for the rancher to design the coverage to their specific needs Because the program is an area plan, there is no opportunity to ‘move’ production Producers cannot affect trigger 14

15. Index Definitions Expected Grid Index: Expected Grid Index: Based on the historical mean accumulated NDVI values, by Index Interval, expressed as a percentage; EGI = 100 Final Grid Index: Final Grid Index: Based on the current NDVI values for each Index Interval If current data represents a 40% reduction, then FGI = 60 Trigger Grid Index: Trigger Grid Index: The selected coverage level multiplied by the Expected Grid Index i.e. - Coverage Level = 85; then Trigger Grid Index = 85 If the final grid index falls below the trigger grid index, the insured may be due an indemnity 15

16. Program Overview Payment Calculations The only insurable cause of loss is when the final grid index value is less than the trigger grid index, and only when caused by a natural occurrence If the cause is determined by FCIC to be an act of man or intentional, a method of assigning the Vegetation Index value from the nearest unaffected grid will be used to establish a final grid index value for the grid affected 16

17. 2011 Changes: Filed 6/30/2010 Addition of Total Loss Factor (VI ONLY) Accelerates the level of loss at which the maximum indemnity amount would be made – allows producers to obtain 100% payouts more frequently VI Program expanded to balance of counties in Idaho, Oregon and South Dakota and all counties in Arizona, New Mexico, and Utah NO CHANGES ARE MADE TO THE PROGRAM AFTER THE CONTRACT CHANGE DATE (CCD) (6/30) 17

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19. VI – Program Overview Index Intervals Crop Year divided into 10, 3-month index intervals Must select at least one interval Currently can select up to 4 intervals Crop Practice = Index Interval Ability for producers to manage appropriate timing risks Correlate to individual growth patterns and production seasons The 3-month intervals provide for greater reaction to biomass reduction events vs. a yearly average 19

20. Technology – VI (2011) USGS – EROS Data: Historical Data can be retrieved from: http://edcsns17.cr.usgs.gov/EarthExplorer/ Select the AVHRR composites Bi-weekly composite – http://ivm.cr.usgs.gov/ NDVI is band 6 in the binary image Information about the data http://ivm.cr.usgs.gov/Metadata.dochttp://ivm.cr.usgs.gov/Metadata.doc NDVI images are processed by the EROS data center and are not further processed by RMA 20

21. Characteristics of the NDVI used for PRF Data from AVHRR satellite are processed by USGS EROS and made available from 1989 to present. AHVRR data is collected daily, however the product used is the 14-day maximum NDVI composite image Resolution of the data is 1-km, but aggregated to 8 km for the group insurance.

22. 1x1 km NDVI Grids Averaged to 8x8 km Grids 22 4 km 2 = 1.5 sections

23. Data Processing for PRF Vegetation Index NDVI data are acquired from EROS Data Center every 14 days At the end of each indexing interval, the NDVI images are staged for the insurance indexing. The data are screened to remove negative NDVI values (clouds, water, etc). Negative NDVI values are not used in the index calculations

24. Vegetation Index Calculations Calculation of the Final Grid Index has 3 stages: Calculation of the daily index values Averaging the daily index to calculate the interval index Standardizing the current interval index to the long- term average of the historical interval indices

25. Daily Index Calculations A daily vegetation condition index is calculated for each grid where: Daily Index i = daily vegetation condition index for day i NDVI i = NDVI for day i NDVImin i = the minimum NDVI across all years for day i NDVImax i = the maximum NDVI across all years for day i Note: 200 is an arbitrary scalar... adapted from Kogan (1990, 1995) Vegetation Condition Index

26. Daily Index Calculation Historical Maximum NDVI on June 1 NDVI on June 1, 2011 Historical Minimum NDVI on June 1 Daily Index for June 1= 49.7

27. Daily Index Calculation The Daily Index equation is basically answering the question of “How does today’s vegetation compare to the “best” and the “worst” conditions for this day historically as seen by the satellite. Daily Index values near zero indicate relatively poor condition of the vegetation compared to the history for that day Does not mean that no vegetation is present! So, if the “worst” day historically for a given day had evergreen vegetation present such as cholla, creosote bush, and juniper, then this “greenness” does not influence the daily vegetation condition index because that “greenness” is the minimum value. High values indicate relatively good vegetation condition compared to the history on that day

28. Final Grid Index Calculation For each interval, the daily index values are averaged for the interval of interest to calculate the Index Interval. The Final Grid Index is then calculated by dividing the Index Interval by the long-term average of the historical indices for the interval in question.

29. NDVI Conditions – December 2010 NDVI Image for December 14 – 28, 2010 EROS Data Center Indicates the gradation of greenness across New Mexico Greener areas indicate higher levels of photosynthesizing leaf area NDVI Departure from Long-Term Average US Forest Service - Wildland Fire Assessment System Compares current NDVI to long-term average Greener areas indicate NDVI is greater than long term average. Yellow to Red areas indicate the opposite

30. NDVI Conditions – February 2011 NDVI Image for February 8 to 21, 2011 EROS Data Center Green area has declined compared to December NDVI Departure from Long-Term Average – Feb 21 US Forest Service - Wildland Fire Assessment System Majority of New Mexico for this period is showing above average NDVI conditions Some of the forested areas showing below average conditions

31. NDVI Conditions – April, 2011 NDVI Image for April 5 to 18, 2011 EROS Data Center NDVI Departure from Long-Term Average – April 18 US Forest Service - Wildland Fire Assessment System Majority of New Mexico for this period is showing average to above average NDVI conditions Eastern New Mexico is showing declining NDVI conditions

32. NDVI Conditions – June 2011 NDVI Image for May 31 to Jun 13, 2011 EROS Data Center NDVI Departure from Long-Term Average – June 13 US Forest Service - Wildland Fire Assessment System Majority of New Mexico for this period is showing below average NDVI conditions Eastern New Mexico is showing large departures from average

33. NDVI Conditions – August 2011 NDVI Image for August 8 to 23, 2011 EROS Data Center NDVI Departure from Long-Term Average – August 1 US Forest Service - Wildland Fire Assessment System Majority of New Mexico for this period is showing below average NDVI conditions

34. Daily NDVI Trends – Union County New Mexico Grid

35. 70% 75% 80% 85% 90% Interval 645 Jan 1 to Mar 31 Final Index = 155.1 Interval 646 Feb 1 to Apr 30 Final Index = 174.6 Interval 647 Mar 1 to May 31 Final Index = 159.7 Interval 648 Apr 1 to Jun 30 Final Index = 102.2 Interval 649 May 1 to July 31 Final Index = 40.95

36. Daily NDVI Trends – Torrance County New Mexico Grid

37. 70% 75% 80% 85% 90% Interval 645 Jan 1 to Mar 31 Final Index = 160.5 Interval 646 Feb 1 to Apr 30 Final Index = 165.58 Interval 647 Mar 1 to May 31 Final Index = 144.8 Interval 648 Apr 1 to Jun 30 Final Index = 9.06 Interval 649 May 1 to July 31 Final Index = 53.61

38. Daily NDVI Trends – Chaves County New Mexico Grid

39. 70% 75% 80% 85% 90% Interval 645 Jan 1 to Mar 31 Final Index = 170.0 Interval 646 Feb 1 to Apr 30 Final Index = 152.2 Interval 647 Mar 1 to May 31 Final Index = 121.9 Interval 648 Apr 1 to Jun 30 Final Index = 77.38 Interval 649 May 1 to July 31 Final Index = 38.8

40. Daily NDVI Trends – Grant County New Mexico Grid

41. 70% 75% 80% 85% 90% Interval 645 Jan 1 to Mar 31 Final Index = 165.05 Interval 646 Feb 1 to Apr 30 Final Index = 145.0 Interval 647 Mar 1 to May 31 Final Index = 128.9 Interval 648 Apr 1 to Jun 30 Final Index = 106.4 Interval 649 May 1 to July 31 Final Index = 75.3

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43. Program Overview - RI Rainfall Index Program – Area Based Plan – 0.25 degree grid vs. county – Utilizes NOAA daily reported weather data – NOAA: Climate Prediction Center (CPC) – Deviation from Normal: 1948 to 2009 – Review of historical indices and how they relate to your ranch is critical – Critical that critical precipitation periods are insured and not time periods outside those months 43

44. Program Overview - RI Crop Year divided into 11, 2-month index intervals Must select at least two intervals Currently can select up to 6 intervals Crop Practice = Index Interval Ability for producers to manage appropriate timing risks The 2-month intervals provide for greater reaction to biomass reduction events vs. a yearly average 44

45. Grid Overview - RI Area of insurance = 0.25 o grids 45

46. Technology - RI NOAA CPC data NOAA wants to use the best data available for their programs too NOAA rainfall data based on the Optimal Interpolation (OI) methodology Historical data (1948 to 2006) currently can be retrieved from NOAA at the following website: ftp://ftp.cpc.ncep.noaa.gov/precip/CPC_UNI_PRCP/GAUGE_CONUS/V1.0/ ftp://ftp.cpc.ncep.noaa.gov/precip/CPC_UNI_PRCP/GAUGE_CONUS/V1.0/ Near real-time data (2006 to present) is currently accessed from ftp://ftp.cpc.ncep.noaa.gov/precip/CPC_UNI_PRCP/GAUGE_CONUS/RT/ ftp://ftp.cpc.ncep.noaa.gov/precip/CPC_UNI_PRCP/GAUGE_CONUS/RT/ 46

47. Technology - RI For 2011 results: the historical period for calculating the long term average is Jan.1, 1948 through Dec. 31, 2009 Precipitation is interpolated to the grid and not measured within a grid Producers MUST understand that even if there is a weather station that reports daily to NOAA CPC inside their grid, the results will NOT equal that weather station Similar to NASS data used for GRP crop policies Producers reporting to NASS – unknown Surveys NASS eliminates in their quality control – unknown 47

48. What we hear - RI Rancher’s believe RMA is using a single point specific weather station Rancher’s provide NWS, NCDC, WFO, or other NOAA/USGS/NASA data sets, airport weather reports, etc. Rancher’s use their own rain gauges Rancher’s believe grid results will always reflect exact conditions on their ranch Purpose: to provide general rainfall conditions in a grid, not measure a single gauge 48

49. NAP and PRF Clarification FSA NAP Coverage and RMA PRF Pilot Insurance Program Coverage Policy Producers can obtain both a PRF policy (VI or RI as applicable) and NAP coverage on the same acres for the same intended use Eligible to earn a PRF indemnity payment and NAP benefit on the same acres for the same intended use 49

50. Web Based Tools 50 www.rma.usda.gov

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56. Historical Indices and DST Actuarial information will not change Actual Final Grid Index for past years Tools are designed to be fluid and will change Updated annually Final Grid Index values will reflect the change in average 56

57. Summary: Technology & Questions– RI & VI Critical that agents and producers understand the Historical and Decision Support Tools Must spend time reviewing the historical records and comparing those results to past production experienced by the producer – FOCUS MUST BE ON GROWING SEASON Decision to purchase MUST be based on an analysis comparing the historical results of the grid to a producer’s experience for past years’ production As with any area plan – results may not track 100% of the time 57

58. Growing Seasons It all comes back to growing seasons! When is grass normally grown in a specific area? Many policies purchased in intervals that may not be conducive to optimum forage growth Does NRCS ecological site information help? 58

59. Growing Seasons – NRCS Example Ecological Site Characteristics Site Name: Limestone Hills (R070CY107NM) Major Land Resource Area: 070C-Central New Mexico Highlands HCPC Mixed grassland/shrubland with scattered trees 59 Percent Forage Production by Month (%) JanFebMarAprMayJunJulAugSepOctNovDec 0057101525 8500

60. Growing Seasons – NRCS Example Ecological Site Characteristics Site Name: Sandy Plains (R070BY055NM) Major Land Resource Area: 070B-Upper Pecos River Valley HCPC Warm-season tall and mid-grassland mixed with shrubs and forbs 60 Percent Forage Production by Month (%) JanFebMarAprMayJunJulAugSepOctNovDec 0035510253015700

61. Growing Seasons – NRCS Example Ecological Site Characteristics Site Name: Shallow Upland(R070AY003NM) Major Land Resource Area: 070A-Canadian River Plains and Valleys HCPC Mid-grassland with minor components of shrubs and forbs 61 Percent Forage Production by Month (%) JanFebMarAprMayJunJulAugSepOctNovDec 003510 253012500

62. Growing Seasons – NRCS Example Ecological Site Characteristics Site Name: Pine Grassland (R039XA012NM) Major Land Resource Area: 039-Arizona and New Mexico Mountains HCPC Grassland with ponderosa pine overstory and scattered forbs 62 Percent Forage Production by Month (%) JanFebMarAprMayJunJulAugSepOctNovDec 003510 253012500

63. Growing Seasons – NRCS Example Ecological Site Characteristics Site Name: Draw (R042XC008NM) Major Land Resource Area: 042-Southern Desertic Basins, Plains, and Mountains State Containing Historic Plant Community Swale Type 63 Percent Forage Production by Month (%) JanFebMarAprMayJunJulAugSepOctNovDec 003387182825620

64. Growing Seasons 2011 Insurance Experience Jan-Mar (645): 14% of acres Feb-Apr (646): 03% of acres Mar-May (647): 03% of acres Apr-Jun (648): 29% of acres May-Jul (649): 06% of acres Jun-Aug (650): 08% of acres Jul-Sep (651): 24% of acres Aug-Oct (652): 03% of acres Sep-Nov (653): 01% of acres Oct-Dec (654): 09% of acres 64

65. What preceded 2011?

66. 2010 Jan/Feb 66 2010 Feb/Mar RI

67. 2010 Mar/Apr 67 2010 Apr/May RI

68. 2010 May/Jun 68 2010 Jun/Jul RI

69. 2010 Jul/Aug 69 2010 Aug/Sep RI

70. 2010 Sep/Oct 70 2010 Oct/Nov RI

71. 2010 Nov/Dec 71 RI

73. 2011 Jan/Feb 73 2011 Feb/Mar RI

74. 2011 Mar/Apr 74 2011 Apr/May RI

75. 2011 May/Jun 75 2011 Jun/Jul RI

76. January, February, March Interval -Results Released

80. February, March, April Interval -Results Released

84. March, April, May Interval -Results Released

88. April, May, June Interval -Results Released

92. May, June, July Interval

96. June, July, August Interval

100. VI vs. RI? an example 01 Roosevelt County (Grid 143144): 90% CL: 150% PF Acres: 1,000 Dollar amount of protection/ac: $10.06 Premium: RI: $1,260 VI: $1,093 Indemnity: RI: $7,421 Grid: 16607 Intervals: Feb-Mar (FIV: 17.9); Apr-May (FIV: 01.6); Jun-Jul (FIV: 51.3) VI: $10,060 (100% payment) Interval: May-Jul (FIV: 18.9) (Note: 650 FIV: ~38.7) 100

101. VI vs. RI? an example 02 Torrance County (Grid 135650): 90% CL: 150% PF Acres: 1,000 Dollar amount of protection/ac: $10.06 Premium: RI: $1,141 VI: $ 906 Indemnity: RI: $7,675 Grid: 17496 Intervals: Feb-Mar (FIV: 43.8); Apr-May (FIV: 06.6); Jun-Jul (FIV: 13.6) VI: $5,603 Interval: May-Jul (FIV: 56.6) (Note: 650 FIV: ~40.5) 101

102. VI vs. RI? an example 03 Lea County (Grid 151175): 90% CL: 150% PF Acres: 1,000 Dollar amount of protection/ac: $10.06 Premium: RI: $1,354 VI: $1,096 Indemnity: RI: $9,234 Grid: 15406 Intervals: Feb-Mar (FIV: 05.3); Apr-May (FIV: 00.0); Jun-Jul (FIV: 16.8) VI: $9,426 Interval: May-Jul (FIV: 33.8) (Note: 650 FIV: ~7.6) 102

103. VI vs. RI? an example 04 Harding County (Grid 125917): 90% CL: 150% PF Acres: 1,000 Dollar amount of protection/ac: $10.06 Premium: RI: $1,131 VI: $1,193 Indemnity: RI: $3,986 Grid: 19004 Intervals: Feb-Mar (FIV: 80.8); Apr-May (FIV: 26.5); Jun-Jul (FIV: 55.7) VI: $7,495 Interval: May-Jul (FIV: 45.3) (Note: 650 FIV: ~11.9) 103

104. VI vs. RI? an example 05 Union County (Grid 119038): 90% CL: 150% PF Acres: 1,000 Dollar amount of protection/ac: $10.06 Premium: RI: $967 VI: $817 Indemnity: RI: $4,023 Grid: 20207 Intervals: Feb-Mar (FIV: 49.1); Apr-May (FIV: 22.9); Jun-Jul (FIV: 96.2) VI: $10,060 (100% payment) Interval: May-Jul (FIV: 28.6) (Note: 650 FIV: ~20.9) 104

105. Facts to Remember Possible to be indemnified for your full guarantee under VI Preliminary results for May, June, and July period would show 100% indemnities in many grids Full guarantees (annual) would be very rare under RI due to the requirement that ranchers must insure more than one interval Dual track processes to assure data is correct prior to releasing results 105

106. Feedback and Suggestions for Possible changes Index Interval selection (VI product) Need to insure period of MAXIMUM growth Do we need to limit index intervals offered in NM Regional differences? County differences? Elevation influences? Shorten the Index Interval periods from 3 month to 2 months? Masking? Other ideas? 106

107. Feedback and Suggestions for Possible changes Offer Rainfall Index instead of Vegetation Index? Rainfall Index issues to think about Potential arid region issues Could limit available index intervals Spotty rainfall impacts Single peril – lack of rainfall only Vegetation Index issues All biomass – impacts when crops & trees are prevalent in the grid Hitting the growth season 107

108. Discussions 108