Corn and Cotton Producers’ Prevented Planting Decision

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Federal crop insurance programs have a prevented planting provision that can protect producers from the financial losses and risks associated with not being able to plant the intended crop within the desired planting period. Revenue Protection, Revenue Protection with Harvest Price Exclusion, Yield Protection, and Area Risk Protection insurance policies pay indemnities if producers were unable to plant the insured crop by a designated final planting date or within any applicable late planting period due to natural causes, typically drought or excess moisture. This post highlights several components of those provisions and provides a few examples.  

Kevin Adkins, Graduate Research Assistant, Department of Agricultural and Resource Economics, University of Tennessee

**Christopher N. Boyer, Associate Professor, Department of Agricultural and Resource Economics, University of Tennessee 302-I Morgan Hall Knoxville, TN 37996 Phone: 865-974-7468 Email: cboyer3@utk.edu **Corresponding author

Aaron Smith, Assistant Professor, Department of Agricultural and Resource Economics, University of Tennessee

Andrew P. Griffith, Associate Professor, Department of Agricultural and Resource Economics University of Tennessee

Andrew Muhammad, Professor and Blasingame Chair of Excellence, Department of Agricultural and Resource Economics, University of Tennessee

Tyson Raper, Assistant Professor, Department of Planting Sciences, University of Tennessee

Angela McClure, Professor, Department of Planting Sciences, University of Tennessee

Introduction

Federal crop insurance programs have a prevented planting provision that can protect producers from the financial losses and risks associated with not being able to plant the intended crop within the desired planting period. Revenue Protection, Revenue Protection with Harvest Price Exclusion, Yield Protection, and Area Risk Protection insurance policies pay indemnities if producers were unable to plant the insured crop by a designated final planting date or within any applicable late planting period due to natural causes, typically drought or excess moisture (United States Department of Agriculture (USDA) Federal Crop Insurance Corporation 2017). The final planting date is the last day a producer can plant the insured crop and receive full coverage from their crop insurance policy. The late planting period is generally a maximum of 25 days after the final planting date but can vary depending on the crop. Table 1 provides important dates for Tennessee corn and cotton producers when examining prevented planting decisions (USDA Risk Management Agency (RMA) 2019).

Table 1: Important Prevented Planting Crop Insurance Dates for Corn and Cotton in Tennessee
DateWest TNMiddle and East TN
Corn
Earliest Planting DateMarch 21stMarch 21st
Final Planting DateMay 20thMay 25th
End of Late Planting PeriodJune 4thJune 9th
 
Cotton
Final Planting DateMay 20th
End of Late Planting PeriodJune 4th
Note: Cotton dates are the same throughout Tennessee.

 

Four Main Prevented Planting Options

A farmer has four main options if they are unable to plant their corn or cotton by the final planting date:

  1. Farmers could plant their crop in the late planting period. This option comes with reduced insurance; the farmer’s production guarantee would decrease 1% per day, for each day of delay after the final planting date until the crop is planted or the end of the late planting period. Production guarantee is the guaranteed revenue amount offered by a crop insurance provider and is calculated by multiplying guaranteed insurance price by actual production history (APH) yield, which is a 4 to 10-year trend adjusted average yield used for future crop insurance purchases, by insurance coverage level.
  2. A farmer can take the full prevented planting payment. The full prevented planting payment is the farmer’s production guarantee multiplied by the prevented planting coverage factor. The prevented planting coverage factor for corn is 55%; therefore, a corn farmer would receive 55% of their production guarantee. The prevented planting coverage factor for cotton is 50%. This option requires leaving the land fallow or planting a summer cover crop after the late planting period that cannot be harvested or grazed before November 1st. This option does not impact the producer’s APH.
  3. A farmer can receive 35% of their full prevented planting payment for corn or cotton and switch to a second crop. If a partial indemnity payment was received for the first crop, the second crop will be uninsured, and a farmer must wait until after the late planting period for the first crop to plant the second crop.
  4. A farmer could forgo the prevented planting payment for corn or cotton and plant a second crop. If a farmer did not receive an indemnity payment for the first crop, they can switch their insurance to a second crop and plant immediately.

In this report, we examine each of these alternatives by assessing the profit-maximizing option using historical crop yield data, and also lay out information producers should consider if they are faced with a prevented planting decision.

 

Examination Using Historical Data

In this section, we present an example of the economic implications of the possible options corn and cotton producers could consider if faced with a prevented planting decision. This example is used to help producers think about their options so they can examine potential economic outcomes that best fit their operation. Net returns to corn and cotton are estimated for the four prevented planting options at 60%, 70%, and 80% insurance buy-up coverage for both revenue protection (RP) and yield protection (YP). In the example, we assume a producer would plant soybeans if they choose to switch crops. Yield data are from planting date experiments in Milan, TN. Market prices are the average prices of corn, cotton, and soybeans in Tennessee in the most recent weeks (Link) and the projected price are the crop insurance prices set by USDA RMA (Link). Production costs are the average costs from 2011 to 2017 from the University of Tennessee field crop budgets for no-till, non-irrigated corn, cotton, and soybeans (University of Tennessee Department of Agricultural and Resource Economics 2018). Insurance premiums were estimated averages for Gibson County, TN from 2011 to 2017 (USDA RMA 2018). Gibson County was selected because this location is where the agronomic data were collected. Table 2 shows a summary of the data used for this study.

Table 2. Data Used to Calculate Net Returns for Corn, Cotton, and Soybeans
Variable DefinitionCornCottonSoybeans
Market Price ($/bu or $/lb)$3.74$0.67$8.21
Projected price ($/bu or $/lb)$4.00$0.73$9.54
Actual Production History yield (bu or lb)152112444
Production cost before planting ($/acre)$126$133$55
Production cost after planting ($/acre)$386$509$246
RP Premium with 60% coverage ($/acre)$7$11$9
RP Premium with 70% coverage ($/acre)$15$20$15
RP Premium with 80% coverage ($/acre)$31$41$32
YP Premium with 60% coverage ($/acre)$5$7$7
YP Premium with 70% coverage ($/acre)$10$12$12
YP Premium with 80% coverage ($/acre)$20$26$25
Note: Land rent included in corn and cotton production cost before planting

 

Results – Corn

Table 3 shows the estimated net returns for a corn producer by RP coverage and prevented planting option. Expected net returns were maximized by taking the full prevented planting payment followed by planting uninsured soybeans after receiving a 35% prevented planting payment regardless of the RP coverage level. Late planting and planting insured soybeans had the lowest expected net returns across all the RP coverage levels analyzed. As RP coverage increased, the expected net returns for late planting corn and planting insured soybeans decreased. This was due to higher premium prices with increased RP coverage and net returns for these options being greater than the guaranteed net returns from RP coverage. That is, producer insurance costs were increasing for unnecessarily high crop insurance protection. Conversely, the expected net returns for taking the full prevented planting payment increased as RP coverage increased. Corn showed similar results when estimated with YP crop insurance (Table 4).

Table 3: Estimated Net Returns for a Corn Producer with Revenue Protection
 Estimated Net Returns ($/acre)
Option60% RP70% RP80% RP
Late Planting Period-$14.23-$21-$37
Full Prevented Planting Option$65$93$110
35% Prevented Planting + Uninsured Soybeans$18$27$33
Insured Soybeans-$44.38-$51-$67

           

Table 4: Estimated Net Returns for a Corn Producer with Yield Protection
 Estimated Net Returns ($/acre)
Option60% YP70% YP80% YP
Late Planting Period-$11-$16-$27
Full Prevented Planting Option$70$98$121
35% Prevented Planting + Uninsured Soybeans$19$29$37
Insured Soybeans-$42-$48-$61

 

Results – Cotton

Table 5 & 6 shows the same general findings for cotton production as corn production with RP and YP coverage. Taking the full prevented planting would provide the highest net returns.

 

Table 5: Estimated Net Returns for a Cotton Producer with Revenue Protection
 Estimated Net Returns ($/acre)
Option60% RP70% RP80% RP
Late Planting Period-$8-$17-$38
Full Prevented Planting Option$102$131$153
35% Prevented Planting + Uninsured Soybeans$26$37$43
Insured Soybeans-$51-$58-$74

 

           

Table 6: Estimated Net Returns for a Cotton Producer with Yield Protection
 Estimated Net Returns ($/acre)
Option60% YP70% YP80% YP
Late Planting Period-$3-$9-$22
Full Prevented Planting Option$106$141$169
35% Prevented Planting + Uninsured Soybeans$27$39$49
Insured Soybeans-$49-$55-$67

 

Important Considerations

Estimates in Tables (3-6) are averages; yield variability is a key variable in estimating net returns and can make the planting options riskier than prevented planting payments. It should be noted that planting later in the season typically comes with a decrease in yield. Therefore, a farmer may want to consider how the field(s) left to plant has (have) performed in past years when planted late.

Not all producers will be able to switch crops when dealing with a prevented planting situation. The prevented planting coverage factor is set to match a producer’s pre-planting costs, therefore, if a farmer already has seed and fertilizer for corn or cotton and it cannot be returned or stored, switching to soybeans may not be a viable option (USDA RMA 2018). In this case, a farmer should carefully look at their costs to date and consider the amount of insurance coverage when deciding between late planting and the full prevented planting payment option. A farmer should contact their crop insurance provider within 72 hours of being prevented from planting by the final planting date to discuss their situation.

Our analysis used fixed prices, but an important factor to consider is market price movements after the crop insurance price has been set. Increases or decreases in market price could affect the profit-maximizing prevented planting decision. Table 7 shows how changes in market price for corn, cotton, and soybeans will affect expected net returns for all four options.

Table 7: Market Price Changes for Corn, Cotton, and Soybeans effect on Net Returns
OptionNet Returns
Increases (Decreases) in Corn and Cotton Market Price
Late Planting PeriodIncrease (decrease)
Full Prevented Planting OptionNo change (no change)
35% Prevented Planting + Uninsured SoybeansNo change (no change)
Insured SoybeansNo change (no change)
 
Increases (Decreases) in Soybean Market Price
Late Planting PeriodNo change (no change)
Full Prevented Planting OptionNo change (no change)
35% Prevented Planting + Uninsured SoybeansIncrease (decrease)
Insured SoybeansIncrease (decrease)
Note: Decrease in market price effect on net returns are in parenthesis.

 

If market prices increase after the crop insurance projected price is set, a producer may want to give more consideration to the planting options.

 

Important Links

For more information about important dates by crop and policy:

https://webapp.rma.usda.gov/apps/actuarialinformationbrowser2018/CropCriteria.aspx

 

For more information on prevented planting provision:

https://www.rma.usda.gov/News-Room/Frequently-Asked-Questions/Prevented-Planting-Coverage-Factor-Changes-for-2019

 

References

Adkins, K.R. 2019. “Prevented Planting Provision Influence on Corn and Cotton Producers’ Late Planting Decision.” Master’s Thesis, University of Tennessee.

 

United States Department of Agriculture Federal Crop Insurance Corporation. 2017. “Prevented Planting Standards Handbook.”

United States Department of Agriculture National Agricultural Statistics Service. 2018. “Quick Stats.” Available at: https://quickstats.nass.usda.gov/.

United States Department of Agriculture Risk Management Agency. 2019. “Actuarial Information Browser 2018.” Available at: https://webapp.rma.usda.gov/apps/actuarialinformationbrowser2018/CropCriteria.aspx.

United States Department of Agriculture Risk Management Agency. 2018. “Prevented Planting Coverage Factor Changes for 2019.” Available at: https://www.rma.usda.gov/News-Room/Frequently-Asked-Questions/Prevented-Planting-Coverage-Factor-Changes-for-2019.

University of Tennessee Department of Agricultural and Resource Economics. 2018. “Field Crop Budgets.” Available at: https://ag.tennessee.edu/arec/Pages/budgets.aspx.

 

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