Nature’s clock is beyond the optimal planting time and it is likely that current wet conditions will continue. This will prevent many North Dakota producers from seeding all their acres before the dates that crop insurance coverage starts to decrease, according to a North Dakota State University agricultural economist.

The final planting date for full crop insurance coverage varies by crop and geographic location. For example, canola varies from May 10 in the southwestern part of the state to May 31 in the northeastern area of the state. For wheat, durum and barley, it is May 31, except for the northern one-third of the state, where it is June 5. It is June 10 for soybeans, dry edible beans and flax.

""After these dates, farmers with insurance can evaluate prevented-planting for that particular crop,"" says Andrew Swenson, farm and family financial specialist with the NDSU Extension Service. ""The question is whether to plant the crop and accept the risk of lower yields and reduced crop insurance coverage or to collect a prevented-planting crop insurance indemnity payment and idle the ground.”

Partial budgeting probably is the best tool to evaluate the two options.

“An important concept of partial budgeting is to ignore everything that will not change,” Swenson says. “Ignore all costs and returns that already have occurred. Examples are land rent, machinery overhead, crop insurance cost, any fertilizer or chemicals that have been applied and the government direct payment. Only consider the returns and costs that will occur because of the decision to plant or not plant.”

For example, the prevented-planting payment for wheat would be about $150 per acre. This assumes a 36 bushel per acre actual production history (APH) wheat yield, Revenue Protection crop insurance at the 70 percent coverage level and prevented-planting coverage of 60 percent (36 bushels per acre times 70 percent times $9.89 per bushel times 60 percent). However, assuming the direct costs of fallowing is $25 per acre, the net positive would be $125 ($150 minus $25) compared with planting the wheat crop.

If the wheat crop is planted late, say on June 8, the expected yield may be down to 25 bushels per acre, so the revenue could be about $225 (25 bushels per acre times a $9 per bushel price estimate).

Assuming seed, fertilizer, chemical and other costs associated with seeding through harvest are $130 per acre, the net positive of planting, for comparison purposes, is $95 ($225 minus $130).

In this example, there is a $30 advantage ($125 prevented-planting minus $95 for planting) for the producer to select prevented-planting. Also, there is less revenue risk and the APH of 36 would be preserved for next year. However, there are reasons that producers may choose to continue planting. One reason is to use up soil moisture and lessen the possibility the ground will be too wet for seeding next year. Another reason is to get grain to satisfy a forward sales contract. Lastly, some producers may choose to gamble on an extended growing season and/or even stronger crop prices.

Prevented-planting may appear to be the better choice in the example but that does not necessarily indicate that it will be profitable. The $125 (prevented-planting indemnity payment minus fallow costs) plus the direct government payment would have to exceed all sunken costs, such as land, machinery ownership and any direct costs previously incurred in preparation for a crop that did not get planted.

Prevented-planting analysis will vary by crop, level of insurance coverage, projected crop yields, prices, cost of putting land to fallow and costs of producing, handling and marketing a crop from the time the decision is made to forgo prevented planting.

""If soil conditions do not allow seeding by the prevented-planting date, each producer should analyze the prevented-planting option and consult an insurance agent if unsure the acreage qualifies, what the payment rates may be and other details,"" Swenson says.

NDSU Agriculture Communication – May 20, 2011