By Eric Richer, Chris Bruynis, and Sam Custer, Ohio State University Extension
Certainly, the Prevented Planting (PP) crop insurance tool has become a hot topic this year. Many of you have had the chance to attend PP meetings or speak with your crop insurance agent. If not, we will try to briefly summarize your options and strongly suggest you talk to your agent or utilize one of the calculators to determine which option best suits your farm operation.
Your first option is to plant the corn crop by June 5, the final plant date for corn (or June 20 for soybeans). Up until the final plant date, you are eligible for your full guarantee at the level you have selected. For example, 80% coverage x 170 bushels per acre APH x $4.00 = $544 per acre. If you elect to plant corn after June 5, you will incur a 1% reduction in your guarantee up through June 25, at which time your corn will crop will become uninsurable. For example, if you plant corn on June 8, the guarantee formula (170 APH, 80% coverage) would be: 80% x 170 bushels per acre x $4.00 x 97% = $528 per acre. Planting dates need to be recorded, as these rules apply on field-by-field and acre-by-acre basis.
Secondly, you can elect to switch your intended corn acres to soybean acres. You will not have the option to file a PP claim (unless you arrive at June 20 unable to plant soybeans). You will be charged for the soybean insurance premium, not the corn premium. The decision tool referenced earlier will be helpful here as this is not an easy decision. June weather (local and regional), supply/demand economics, trade policy and input options increase the complexity.
Your last option is to file for PP, assuming you did not get corn planted by June 5. The mechanics of PP deserve a review to ensure understanding. PP covers Yield Protection (YP), Revenue Protection (RP) and Revenue Protection with Harvest Price Option policies and references the February new crop corn pricing period (aka projected price). The projected price for 2019 corn is $4.00 per bushel and $9.54 per bushel for soybeans. A corn policy has a 55% PP guarantee (buy-up available to 60%) and soybeans a 60% guarantee (with buy-up available to 65%). In order to further be eligible for PP, at least 20 acres or 20% of that unit must not get planted (the lesser of the two). PP does not affect your yield history as long as you do not plant a second crop. So a quick example (80% coverage, 170 bushels per APH) for prevented plant corn would be: 80% x 170 bushels per acre x $4.00 x 55% = $299 per acre.
To be sure, there are costs besides the premium that are associated with PP. Are there “restocking fees” associated with returned seed or other inputs? What are the year-long weed control costs? If utilizing cover crops, what will their cost be? What are my land costs or how do I address my land costs? Do I need to pay labor and management costs even though the land wasn’t farmed? And finally, are their opportunity costs (marketing) missed because of taking PP?
The reporting of PP acres — should you elect that option — is quite simple. First, the total acres of PP corn that you can file in 2019 can be no greater that the greatest number of acres of corn you reported in any of the previous four years (2015-2018). To report Prevent Plant acres, you would first need to turn in a notice (starting June 6) to your insurance agent. Then report your PP to USDA Farm Service Agency to get it on your acreage report. Then you will need to work with your adjuster to finalize the claim, which will generally be paid within 30 days.
Prevented planting insurance payments can qualify for a 1-year deferral for inclusion in income tax. You can qualify if you meet the following criteria:
- You use the cash method of accounting.
- You receive the crop insurance proceeds in the same tax year the crops are damaged.
- You can show that under your normal business practice you would have included income from the damaged crops in any tax year following the year the damage occurred.
The third criteria is the sometimes the problem. Most can meet the criteria, although if you want reasonable audit protection, you should have records showing the normal practice of deferring sales of grain produced and harvested in year 1 subsequently stored and sold in the following year.
We have reviewed two prevented planting decision tools that can serve as a resource in your decision making process with your crop insurance agent. Both tools also provide resources for determining replant decisions.
The Department of Agricultural and Consumer Economics at the University of Illinois at Urbana-Champaign recently highlighted their farmdoc decision tool. The farmdoc tool can be used to make calculations for expected returns from three options: 1. Take a prevented planting payment and not plant a crop to be harvested or grazed. 2. Plant corn. 3. Plant another crop.
The farmdoc Prevented Planting Module is used to aid in making calculations for each alternative. The Prevented Planting Module is part of the Planting Decision Model, a Microsoft Excel spreadsheet within the FAST series available for download on farmdoc (here). The specific spreadsheet is available (here). The farmdoc model contains Ohio data but also allows you to use your specific numbers.
Iowa State also has an article and tool that can be found at https://www.extension.iastate.edu/agdm/crops/html/a1-57.html. The Iowa State model can be used to determine three options also: 1. Go ahead and plant the original crop. 2. Plant an alternative crop 3. Abandon the acres, and plant a cover crop.
The Iowa State model is designed specifically for Iowa but allows you to use your numbers.