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Prevented planting and soybeans

By Gary Schnitkey, Krista Swanson, Jonathan Coppess, and Ryan Batts, Department of Agricultural and Consumer Economics at the University of Illinois and Carl Zulauf, Department of Agricultural, Environmental and Development Economics at the Ohio State University

 

The Ohio prevented planting date for soybeans is June 20 with a 25-day late plant period that extends until July 15.

After June 20, the following two options are realistic to consider for most Midwest situations:

  • Take a prevented planting indemnity on soybeans, or
  • Plant soybeans.

A farmer could plant another crop on intended soybean acres, but the economics of those alternatives likely are not competitive with soybeans after the soybean final planting date has arrived. A farmer with qualifying insurance coverage could also wait until the end of the late planting period (25 days after the final planting date) to plant another crop for harvest besides soybeans, resulting in a reduction to a 35% prevented planting indemnity. Viable alternative crop options to be planted on intended acres are difficult to identify aside from specific situations such as a livestock farmer who needs the acres for feed grains.

When considering the prevent plant or plant options for soybean, the following is useful to calculate: 1) net return from prevented planting and 2) minimum net return from planting soybeans. These calculations are illustrated for an 85% RP policy with a Trend Adjusted Actual Production History (TA-APH) yield of 60 bushels per acre. The 2019 projected price of $9.54 per bushel is used.

 

Net return from prevented planting

The prevent payment factor for soybeans is .60.  An option of 0.65 prevent plant payment factor exists but it must have been purchased during the insurance enrollment period.  For the .60 payment factor, the prevent planting indemnity is: $292 per acre = .60 PP factor x .85 coverage level x 60 TA-APH yield x $9.54 projected price.

From the prevented planting indemnity, costs of $40 per acre will be subtracted to cover weed control costs and the crop insurance premium. As a result, net return from prevent plant is:

$252 per acre = $292 PP payment – $40 costs.

 

Minimum net return from planting soybeans

Revenue is often lowest when crop insurance elected by the farmer will just make a payment.  This revenue can thus serve as a comparison to evaluate the risks of planting. In the case of late planting, it also often is a reasonable expectation of net return from planting.

To calculate minimum net revenue, a price and yield that just triggers crop insurance indemnities is needed. Prices at the $9.54 projected price will be used. A $.40 basis is subtracted from the $9.54 projected price to reflect the fact that farmers receive funds based on cash sales in a local area. As a result, the price that will be used is $9.14 ($9.54 projected price minus $0.40 basis). At that price level, a yield just at the TA-APH yield times the coverage level will trigger a payment. Note that the guarantee must be adjusted down 1% per day after the final planting date. Soybeans will be assumed to be planted 2 days after the final planting date, resulting in a yield of 50 bushels per acre (60 TA-APH yield x .85 coverage level x (1 – .02)). The 50-bushel yield and $9.14 price gives revenue of $457 per acre (50 yield x 9.14 price).

The minimum net return will equal this minimum revenue minus costs yet to be incurred, plus a per acre estimate of Market Facilitation Payment (MFP). In our estimate, a $260 cost and $50 MFP payment is used. The net return from planting soybean at its lowest level is: $247 per acre = $457 revenue – $260 costs + $50 MFP payment.

 

Comparison

Note that the minimum net return from planting soybeans is $5 less than the net return from taking the prevent plant indemnity: $247 minimum net return from planting compared to $252 net return from prevent plant. Other than reductions to APH yield because of a low 2019 yield, late planting of soybeans presents little risk, particularly in 2019, and some upside return potential. The downside risk will become greater the further past the final planting date because the crop insurance guarantee will continue to decline.

The above analysis is based on several assumptions:

  • The 2019 MFP payment will be near $50 per acre, a level that has not been announced by the Farm Service Agency at press time.
  • Costs yet to be incurred are $260 per acre. Costs can vary from this estimate. Some farmers have purchased treated soybean seeds, which cannot be returned. Alternatives for storing this seed should be considered. This seed could also be used as a cover crop for prevent planting acres.
  • Prevented planting payments will not change. There is some discussion that prevented payments may be increased because of a recently passed disaster assistance bill. Increases in prevented planting payment would increase the returns from prevent planting.

For the above analysis, there is some upside to planting soybeans. Yields could exceed the 52 bushels per acre minimum level resulting in higher return.  Prices could also increase above the $9.14 cash price used in the minimum guarantee calculation. While there is an upside, the upside on soybeans appears limited. This suggests taking the soybean prevent planting payment may be the best alternative, particularly the later soybeans are planted.

Planting soybeans has limited risk as compared to taking a soybean prevent plant indemnity, particularly if planting can occur near the final planting date. However, upside of soybean planting likely is not large and will deteriorate during the late planting period. Many will find that the reduced upside potential and higher risks warrant not planting soybeans about a week after the final planting date. Moreover, some farmers may find taking the prevent planting payment immediately after the final plant date has arrived a proper alternative.

Because each farm situation is unique, we suggest using the Prevent Planting Module to aid in calculations of returns from alternatives.  The Prevent Planting Module is part of the Planting Decision Model, a Microsoft Excel spreadsheet available at https://farmdocdaily.illinois.edu/2019/05/prevented-planting-2019-market-facilitation-program-payments-disaster-assistance-and-price-dynamics.html on the farmdoc website.  Moreover, alternatives should be discussed with crop insurance agents.

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