Minding Ag's Business

For the last 20 years, even after the deluges of 1993, it was rare for anyone in the prime Corn Belt to elect a prevented planting claim, unless they farmed near river bottoms. While Prairie Pothole soils in the Dakotas captured the vast majority of this insurance indemnity year after year, that won't necessarily be the case in 2013. In fact, in Iowa alone, state Secretary of Agriculture Bill Northey counts 2 million acres of corn and 5 million acres of soybeans left to plant. "Mostly too wet to plant and replant now," he tweeted May 28.

The Risk Management Agency designed Prevented Planting rules to be the last resort kind of claim, so with only a 60% payment, they are notoriously skimpy compared to planting a crop (even late) with much fuller insurance coverage. What's more, growers with revenue policies who elect this option no longer qualify for the automatic price adjustment should prices rally by harvest (that was a 32% higher payment in 2012 compared to the spring price). Maybe that's hopeful thinking, but markets are full of surprise.

However, several unusual scenarios are prompting top-notch corn growers in Minnesota, Iowa, Missouri and Wisconsin to think the unthinkable and sit the year out (see "Some Corn Growers Call It Quits" on Farm Business page). It's not something insurance agents are recommending this early, but growers are grappling with the reality. Parts of Iowa received 9" of rain last week, and 26 counties more than 3", with more on the way this week. They say they need a good week or more of dry weather to plant before yield losses are too severe--or the risk and expense of drying a high moisture crop with meager yields compounds the financial damage.

Secondly, growers have fewer pre-plant investments than normal. Many didn't forward price much of their crop this season, so they won't need to buy themselves out of contracts. If seed can be returned and fertilizer or pre-plant herbicides weren't applied, it's easier to make the decision to walk away from the crop, especially if commodity prices don't bounce past the $5.65/bu. spring planting guarantee for corn.

"If market prices were rallying--say to $6.20 or higher, I'd have to reevaluate," said Eric Hawbaker of Howard County, Iowa, who has only planted 420 of his 1,400 corn acres and none of his 500 acres of soybeans. He's leaning toward taking a prevented planting claim if fields don't dry up by June 10, rather than switching to soybeans. "But right now the market is still trading a 13 billion or 14 billion bu. corn crop, even though 10% of the crop may not get planted."

Before you jump to conclusions, review how the math on prevented planting works: Basic prevented planted coverage pays at 60% x $5.65 x APH yield x coverage %, so someone with a 220 bu. APH yield and 80% coverage would claim about $597/acre. If a grower didn't pay excessive rent, or already sink $250/acre into fertilizer or apply pre-plant herbicides, that's enough to breakeven but take home little to no profit. Keep in mind, a 170 bu. APH yield and 75% coverage generates only $432/acre. (With most Iowa soybean growers, the indemnity only runs about $300/acre, so you can see why they don't want to get stuck with a prevented planting soybean claim on land that qualifies now for corn.)

RMA rules have many caveats, so contact your agent for your specifics, but here's a general guideline:
--Land must be insurable. In other words, no first-year Conservation Reserve land, land with cattails and other wetlands properties, or land that has not been planted and brought to harvest in at least one of the last four years.

--Others in the surrounding area must be affected by the same conditions. In other words, if everyone else got their crop planted and you did not, the claim will be denied.

--Your affected acres must meet the minimums. That's greater than the lesser of 20 acres or 20% of the insurable crop acres in the unit. The acreage that was prevented from planting does not need to be contiguous.

--You must report election to your insurer no earlier than the final planting date and no later than 72 hours after you determine you are unable to plant the crop. This must be no later than 72 hours after the late planting dates (June 25 for corn in most of the Midwest, for example, so you don't need to make your decision Memorial Day week).

Remember, you have the option to keep planting within the 25 days after RMA's "final" planting date, it just reduces your coverage 1% per day. So an 85% policy becomes an 80% policy after 5 days. You have the expense of planting and harvesting a crop, but there's no 60% reduction on claims as there is with prevented planting.

This is one of the toughest choices growers must make, because of so many unknowns, such as potential yield damage from late planting and whether that might be offset by higher market prices on what you do harvest. Iowa State University is touting its insurance calculator to help you decide. But what would you do?







Marcia Zarley Taylor on Twitter@MarciaZTaylor

(SK)

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