Should You Plant or Take Prevented Plant Coverage?05/31/2019
Many farmers deluged by spring rainfall face an agonizing choice of deciding whether to plant a crop or exercise prevented plant crop insurance coverage. Depending on where farmers live, that choice is quickly approaching. In southern Minnesota, for example, May 31 (this Friday) is the final planting date for corn and June 10 for soybeans for crop insurance purposes. In some areas, that date has already passed (May 25 was the final planting date for northern Minnesota corn producers.). Farmers can still plant a crop within 25 days of the final planting date, but they will have reduced crop insurance coverage.
Below are some scenarios presented by Dave Bau, Phyllis Bongard, and Liz Stahl, University of Minnesota (U of M) Extension Educators.
SCENARIO 1: CHOOSE NOT TO PLANT AND TAKE PREVENTED PLANT.
If you choose to take prevented plant for corn, there is a simple payment rate of $4 per bushel multiplied by your APH (actual production history) and your insurance coverage percentage. This equals your revenue guarantee per acre.
To calculate prevented planting payment for corn, the guarantee is multiplied by 55% (unless you paid a higher premium for a more coverage). For soybean, the payment rate is $9.54 per bushel, and the standard prevent plant rate is 60% of the guarantee.
- Corn at 85% coverage when your APH is 180 bushels per acre: $4 x 180 bushels (APH) x .85 x .55 = $336.60 per acre payment less premium.
- Soybeans at 85% coverage when your APH is 50 bushels per acre: $9.54 x 50 bushels (APH) x .85 x .60 = $243.27 per acre payment less premium.
SCENARIO 2: PLANT A CROP LATE
You decide to plant, but what crop will you plant? The yield potential for corn planted after mid-May declines fairly rapidly. For corn planted June 9, yields were reduced by 21% to 31% in long-term U of M research. In addition to yield potential losses, insurance coverage declines by 1% per day after the final planting date.
If you plant corn on June 9, your coverage level decreases by 9%. Using the corn example above, the revenue guarantee at 85% coverage would go from $612 an acre to $556.92. The equation follows:
- Corn with 85% coverage planted June 9 = $4 per bushel x 180 bushels per acre x .85 x .91 = $556.92 per acre.
Keep in mind the yield potential would be expected to decrease at least 20%, resulting in an estimated loss of 36 bushels per acre, or an estimated final yield of 144 bushels per acre. If these bushels are sold for $3.80 per bushel cash this fall, gross income would be $547.20 per acre, so the small crop insurance payment would be just under $10 per acre. With later planted corn, higher drying costs and lower test weights would also be expected. Using average southern Minnesota input costs for corn at $722 per acre, this scenario results in a loss of income.
If you decide to plant soybeans on June 15, your coverage would go down by 5%. Using the soybean example again, your coverage would drop from $405 to $385 per acre.
- Soybean with 85% coverage planted June 15 = $9.54 per bushel x 50 bushels per acre x 0.85 x 0.95 = $385.18 per acre.
What will your actual yield projection be on June 15? According to long-term Minnesota research, yield potential for soybeans planted June 15 would be around 70% of optimal.
Will 35 bushels at $9.00 or a total of $315 per acre pay the bills? An insurance payment of approximately $70 per acre would be expected in this example. With total costs per acre projected at $469 per acre, this scenario would result in an $84 dollar per acre loss.
If a farmer chooses the prevented plant option, the yield used in their APH will not be affected unless a second crop is planted. In this case, the yield used for 2019 on the first crop must be reported as 60% of APH on that unit.
Farmers who take prevented plant coverage also must remember that weeds will grow, even if the crop doesn’t. Mark Loux, Ohio State University Extension weeds specialist, advises farmers to budget for two passes of either mowing, tillage, or herbicide applications.
Failure to control weeds will haunt farmers in future years when they can grow crops on those fields.
MARKET FACILITATION PROGRAM PAYMENTS
One more factor to consider is the recent announcement of another year of Market Facilitation Program (MFP) payments. These payments will be made on planted acres and acres cannot be higher than your last four-year planted average. The exact details have yet to be stated, but this would encourage a farmer to plant. Using an estimate of $2 per bushel for soybeans at 50 bushels per acre, this would add $100 per acre and make late planted soybeans profitable.
Bottom market economics look better for planted corn than soybeans, but the potential MFP payment could narrow the margin between corn and soybeans.
CHECK WITH YOUR INSURANCE REPRESENTATIVE
Be sure to check with your crop insurance representative to discuss options and to determine what will fit best with your individual situation.