Thursday, May 26, 2011
What Do You Want To Know About Prevented Planting And Crop Insurance?
What is the most frequent question asked in the Cornbelt? Could it be “What about prevented planting, and how do I figure out if I want to do that?” With over half of the corn yet to emerge in the Cornbelt, many producers know that uneven emergence will hurt yields, ponds will hurt yields, and that is in the fields where they have been able to plant. What about those fields that remain too wet to plant with June 1 on next week’s calendar page? There are many resources for you to decide if prevented planting is something you should discuss with your crop insurance agent and your other advisors.
It would be best if you had a good crop to harvest next fall, but would the prevented planting provisions of your crop insurance policy provide the flexibility you need to cover your production expenses? As time goes by and sunshine becomes less available for your corn crop, your yield will decline along with gross revenue. If you have crop insurance, and happened to accept the USDA’s incentives to sign up for 85% coverage of Yield Protection or Revenue Protection, then your payment from prevented planting will be higher than would normally be expected. IL economist Gary Schnitkey says depending on your final planting date (something you should check with your insurance agent) your prevented planting payment may be significant. And he says your decision will be based on how fast you might be able to finish planting and how high you think commodity prices might climb.
Prevented planting may have been a provision you have explored in the past, if not, Iowa State economist William Edwards has a good explanation of how it works. If you are prevented from planting for insurable reasons (wet fields, not a flat tire on the planter) then you would be able to get 60% of your guarantee at a minimum. However, if you decide to plant soybeans, the delay will also hurt your soybean yield and will limit your ability to collect a payment on corn.
If you do not plant soybeans, you will be required to control weeds and plant a cover crop. Keep in mind that prevented planting benefits are not available for holders of group risk insurance policies.
While there will be benefits to filing for prevented planting, there may also be some deductions from those benefits that you should calculate. Ohio State economist Barry Ward says plug your own numbers into his spread sheet to evaluate your decision on whether to seek prevented planting indemnity payments.
One of your big decisions in the next several days will be whether to abandon corn and plant beans, or whether to seek a prevented planting payment. Another decision aid to help with that choice is offered by Gary Schnitkey at Illinois. One of his main points is the importance of commodity prices, and the fact that the decision making process is closely related to the calendar and your geography.
Before you implement a decision take some time to visit with your crop insurance agent. He or she will apprise you of the alternatives and may offer some considerations that you did not evaluate.
Summary:
Many Cornbelt farmers who have been unable to plant because of wet fields are at the point of needing to evaluate whether to try to squeeze out a small corn crop, shift to soybeans, or seek a crop insurance indemnity payment for prevented planting. Any decision should be evaluated with the help of an insurance agent. As time goes on, the potential corn yield goes down, and the 60% payment under a buy-up level of insurance may be a better source of revenue.
Posted by Stu Ellis on 05/26 at 12:49 AM | Permalink
Comments
Posted by: Jib at May 30, 2011 9:09PM
Late Planting BULL . . . ishness
Looking at a Darke county Ohio farm, the projections indicate:
85% 80% 75% 70% 65% insurance coverage for Revenue Protection
30% 34% 35% 37% 46% Chance planting nets more than taking Prevented Plant
This projection has corn planting wrapped up by June 15. This example includes 15% of the crop timely planted, between May 21 and June 5. The projections above do not reduce US corn planted acres nor is US yield reduced by the delayed planting. When US planted acres are 89.0 million acres and the top US yields are limited by this spring’s weather the economics change to:
85% 80% 75% 70% 65% insurance coverage for Revenue Protection
69% 74% 82% 85% 94% Chance planting net more than taking Prevented Plant
$225 $198 $175 $195 $216 Max over Prevent Planting
$6 $26 $47 $67 $88 Mid-Point $/A over Prevent Plant by Late Planting
$45 $45 $50 $61 $77 Ave $/A over Prevent Plant by Late Planting
$118 $98 $77 $56 $36 Max disadvantage by planting
Late planting was profitable for all coverage levels under the second assumption. The 85% crop insurance coverage was always profitable under the first assumption when planting continued, 75% was profitable 70% of the time, 70% & 65% coverage was profitable half the time under the first scenario.
So if one is risk adverse, prevent planting is the way to go. If one believes this spring’s weather will reduce planted acres and reduce top end US yield, continuing to plant corn may net more money. It should be noted every operation has its own cost and yield relationships. These projections may not correspond to your situation.
Jin aka Gibberish