Wet conditions in Ohio and the Eastern Corn Belt has slowed (halted?) planting progress for Ohio producers. According to the May 20th Crop Progress Report by USDA National Ag Statistics Service, Ohio had only 9% corn planted. Surprisingly that was ‘double’ what was planted the week before and well behind the 5-year average of 62% planted. In 2018, Ohio was 69% planted by this report date.
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 (see associated “Decision Tools” article by Sam Custer) 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 bu/ac APH x $4.00 = $544/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 you can choose not to insure your corn crop or you can insure for the same guarantee as your prevent plant amount. For example, if you plant corn on June 8, the guarantee formula (170 APH, 80% coverage) would be: 80% x 170 bu/ac x $4.00 x 97% = $528/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/bu and $9.54/bu 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 bu/ac APH) for prevented plant corn would be: 80% x 170 bu/ac x $4.00 x 55% = $299/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 & management costs even though the land wasn’t ‘farmed’? And finally, are their opportunity costs (marketing) missed because of taking PP? We do not have space in this article to address these but they are things to be considering.
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.
There are many additional questions that we could address in this article but these are the basic options to guide your thought process…unless Mother Nature just won’t cooperate!