Special Edition   April 20, 2009

PREVENTED PLANTING 101

The quickest way to understand the basic prevented planting provisions within the Federal Crop Insurance program is to work through an example. This reference sheet outlines three alternative scenarios; 1) "normal" production, 2) production loss great enough to trigger a crop insurance indemnity payment, and 3) prevented planting on the entire insurable unit.

The revenue and cost information for these scenarios were taken from the 2009 North Central Region Hard Red Spring Wheat Budget. For simplicity, we will use an APH (Actual Production History) Policy, which covers yield losses only. The revenue based policies, like Crop Revenue Coverage (CRC), Revenue Assurance (RA), and Income Protection (IP), use similar procedures. Other key assumptions include:

  • APH Wheat Yield = 34 bu.
  • APH Wheat Price = $ 6.70 / bu. (100% price election)
  • Yield Election = 70 % of APH (can range from 50% to 85%)
  • Basic Prevented Planting Coverage = 60 % (can buy-up to 65% or 70%)
  • Insurable Unit = 100 acres.
  • Scenario #1: "Normal" Production

    This scenario represents a condition where an average yield is achieved. It should be noted that nitrogen fertilizer prices have fallen since these budget estimates were prepared.

    Gross Revenue per Acre (34 bu. x $ 5.90/bu.)

    $ 200.60

    Direct Production Costs per Acre (seed, fert., chem., fuel,)

    $ - 131.49

    Machinery Cost per Acre

    $ - 28.07

    Land Costs per Acre

    $ - 38.40

    Return to Management & Labor
    (without direct farm program payments)

    $ 2.64

    Scenario #2: 2009 Wheat Yield of 20 bu./a. (an APH claim)

    This scenario represents a "typical" crop insurance claim, where the actual production falls below the crop insurance guarantee (i.e. there is more than a 30 percent yield loss). The reason for the yield loss could be due to drought, disease, insects, hail, or other natural occurrence. It is important to remember that ALL of the production expenses are still incurred within this scenario. Also, this scenario assumes a 70 % yield election, which is very common for ND farmers. However, yield elections range from 50 to 85 percent, in 5 percent increments. Some farmers may have chosen different coverage levels.

    Indemnity Payment:

    34 bu./a. APH Yield x 70% Yield Election

    23.8 bu./a. guarantee

    23.8 bu./a. Guarantee 20 bu. Actual Yield

    3.8 bu./a. loss

    3.8 bu./a. loss x 100 acre Insurable Unit x $6.70/bu. APH Price

    $ 2,546.00 Payment
    OR $25.46 /a.

       

    Market Income per Acre (20 bu. x $ 5.90/ bu.)

    $ 118.00

    Indemnity Payment per Acre

    $ 25.46

    Gross Revenue per Acre

    $ 143.46

       

    Total Costs per Acre (sum of all costs in Scenario #1)

    $ - 197.96

    Return to Management and Labor

    $ -54.50

    (without direct farm program or SURE payments)

    Scenario #3: 2009 Prevented Planting for ALL Wheat Acres on Unit

    This scenario represents a prevented planting situation. It assumes that ALL of the acres in the insurance unit are prevented planted. If only a portion of the insurable unit is prevented planted, the planted and prevented planted areas are treated separately. To qualify for prevented planting indemnity payments, the area prevented planted must be either 1) more than 20 acres or 2) more than 20 percent of the insurable unit.

    Indemnity Payment:

    34 bu./a. APH Yield x 70% Yield Election

    23.4 bu./a. guarantee

    23.4 bu./a. Guarantee x 60% Prevented Planting Rate

    14.3 bu./a. loss

    14.3 bu./a. loss x 100 acre Insurable Unit x $6.70/bu. APH Price

    $ 9,581.00 Payment
    OR $95.81 /a.

    Prevented Planting Indemnity Payment

    $ 95.81

    Machinery Cost per Acre (same as Scenario #1)

    $ - 28.07

    Land Cost per Acre (same as Scenario #1)

    $ - 38.40

    Net

    $ 29.34

    (without direct farm program or SURE payments)

    CAUTION: The net return in Scenario 1 and Scenario 2 can NOT be directly compared to the net return in Scenario 3. The $29.34 per acre net return in Scenario 3 is the amount available to pay for season long weed control, planting the required cover crop, and providing a Return to Operator Management and Labor.

     

    LATE PLANTING GUARANTEE REDUCTIONS

    When the final planting date is reached, the policy holder has a choice to either A) declare prevented planting or B) continue to plant the insured crop and accept a reduction in coverage level. If the policy holder continues to plant, the coverage level will be reduced by one percent per day for the first 25 days after the final planting date. On the 26th day after the final planting date, the maximum coverage level falls to 60 percent, which is the prevented planting coverage level (unless buy up coverage has been purchased). Please note that Millet, Sugar Beets, and Potatoes have slightly different late plant reduction rates during the first 25 days, and that the maximum coverage level after 25 days is lower for Sugar Beets and Potatoes (see Table 1).

    NOTE: Final Planting Date This is the latest planting date when FULL insurance coverage is still available. After this date, either the coverage level is reduced or prevented planting provisions become available. The final planting date varies by crop, by state, and potentially by growing region within a state (please see the following Final Planting Date Tables).

    Final Planting Dates for Full Crop Insurance Coverage

    Final Planting Dates for Full Crop Insurance Coverage

    Final Planting Dates for Full Crop Insurance Coverage

    Late Planting Guarantee Reductions This is a percentage discount applied for each day actual seeding continues after the final planting date. For example, if an insured producer chooses to continue planting wheat after the final planting date (May 31 for most counties in ND), a 1% reduction in coverage will be applied for each day after the final planting date. This reduction applies for the first 25 days after the final planting date. On the 26th day, the coverage level automatically shifts to the Prevented Planting coverage rate (60% for the standard policy, with a buy-up option to increase to 65% or 70% of the base coverage).

    Frayne Olson
    Ext. Agribusiness and App. Economics
    frayne.olson@ndsu.edu


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