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Agony of prevented planting

As the final planting date for federal crop insurance on corn approaches many areas of a waterlogged Corn Belt, farmers are wrestling with a decision that gives even ag economists a headache.

In some areas, such as Nebraska, the final planting date (May 25) has passed, but for Iowa and most of Illinois it’s next week, May 31. And in Indiana and soggy Ohio, it’s June 5.

There’s a bit of wiggle room. You have up to 72 hours after the planting date to notify your crop insurance agent.  Or you can decide to not collect prevented planting and for 25 days after the planting date you can still plant and get some coverage of the crop. But you lose 1% of your guarantee for each day past the planting date. If you opt for the prevented planting payment, you would normally be paid 60% of the production guarantee.

In some areas of the country, especially the eastern Corn Belt and North Dakota, farmers will have little choice but to try to collect prevented planting insurance.

“In North Dakota, this whole state, not just the Red River Valley, is experiencing major wetness, from western North Dakota, that’s usually praying for rain, to the valley,” says Aaron Krauter, the state’s Farm Service Agency executive director.

It’s not a new problem there. In 2009 the state had 1.9 million acres of crops that didn’t get planted. In 2010 it was 1.7 million acres. This year Krauter expects as much as 4 million acres of all crops to remain unplanted. Corn, 49% planted last week, was the favored crop, but still behind the five year average of 77%. Only 6% of the state’s durum wheat is in the ground, compared to a normal 71%.  

“It’s never been this way in North Dakota,” he says. “The joke right now is, ‘Do you have an uncle named Noah?’”

In other wet spots in the Corn Belt, where planting might be a late choice if weather cooperates, it’s not an easy one.  Some experts say the numbers already favor just taking a prevented planting payment. Others aren’t so certain, given the way crop insurance decisions can affect other government programs like SURE (Supplemental Revenue Assistance Payments Program).

At the University of Illinois, economist Gary Schnitkey has crunched the numbers and found a slight advantage to prevented planting. In an analysis published this week, Schnitkey projects a prevented planting net return for corn with 150 bu.A APH at $382 an acre if it’s insured at the 75% level. He assumes you’ll spend $15 an acre to control weeds and pay $9 an acre, still meeting the requirements for an enterprise unit.  If you plant, he assumes a yield at this late date of 120 bushels an acre and a price of $6.40 a bushel, which gives you a net of only $373 an acre after expenses for a late-planted crop.  If you have a higher level of coverage, the advantage to taking prevented planting is even greater.

Another advantage to a prevented planting claim is that is doesn’t affect your APH (actual production history),  says Kansas State University, economist Art Barnaby. A late planted crop with a lower yield will be tossed into the average for your APH and could lower it.

Still, Barnaby confesses to a bias in favor of trying to get a crop in.

“I think a lot of those guys are going to plant if they can, up to ten days late,” says Barnaby.

That’s partly because prevented planting affects other forms of disaster assistance. The SURE program is tied to the level of crop insurance coverage you buy. The higher the level, the larger potential SURE payment. Let’s say you bought 75% coverage for crop insurance. But if you take prevented planting, you’re paid 60% of your guarantee per acre and SURE treats your disaster coverage as if you had a correspondingly lower guarantee.

"It really is complicated beyond belief,” Barnaby says. There are other pitfalls to watch out for.  Here are a few:

  • Group policies, GRP and GRIP, have no prevented planting coverage.
  • Depending on the size of your prevented planting claim, you may lose the Enterprise Unit premium for your insurance and have to pay a higher basic coverage premium.
  • You must be able to document the prevented planting claim to the satisfaction of the insurance company.
  • The insurer ultimately decides whether or not you used good farming practices and qualify for prevented planting. If everyone else around you gets planted and you don’t (and your farm is similar, not the only one in a flood plain), then you’re probably not going to get a payment.
  • In the past, prevented planting with revenue insurance products would also pay more if the fall prices were higher. No more. The new COMBO insurance pays prevented planting only on the prices set last February.

“Probably the biggest issue with prevented planting this year might be eligible acres,” says Steve Griffin, a crop insurance consultant with CVision Corporation in West Des Moines, Iowa.

In Iowa, the ratio of corn to soybeans on farms has been shifting from the traditional 50/50 to something closer to 65% corn and 35% beans, Griffin says. With more favorable potential returns to corn, some growers might have planned to grow 75% corn and 25% beans, he says.

“You may not get the prevented planting on those extra acres,” Griffin says. That’s because prevented planting rules say you can collect only on the highest corn acreage you planted in the past three years. If this was your first year of expanding corn, you’re not going to get prevented planting on all of the crop.  There are some exceptions to that rule. If you bought or rented land with a corn planting history, you can add that to the prevented planting claim, too.

If you disagree with your insurer who denied a prevented planting claim by saying you didn’t follow good farming practices, you can go to arbitration over it, Griffin says.  

But you’ll have to pay your share of the arbitrator’s fee, hire an agronomist or other qualified expert witness to support your case, and probably an attorney as well, he says.

“It could easily run $5,000 to $10,000 when you’re all done, at a minimum,” says Griffin.

A cheaper route might be to ask USDA’s Risk Management Agency to decide, but it’s harder to appeal that decision, too.

If anything, RMA is tightening up the standards for getting prevented planting payments.

The issue is especially tough in North Dakota, where the climate in recent years has become wetter and some areas of the state were once farmed are permanently under water. That’s especially true in Devil’s Lake, which drains a closed basin and has had rising water levels for years. Entire towns and farms are now under water.

In the past, insurance companies have made payments on land that was flooded for several years, says Scott Stofferahn, state director for eastern North Dakota for Senator Kent Conrad. In one case, the RMA even lost in arbitration over land that had been flooded for 15 years, he tells Agriculture.com.

Although some of the experts interviewed for this story contend that farmers can still get three years of successive prevented planting payments, Stofferahn says the RMA handbook on prevented planting loss adjustment for 2012 will make it clear that you can get only two prevented planting payments in a row.

“If you’re not planting or harvesting in one of the last three years, you’re out,” he says.

The RMA has issued a final agency determination that land has to be available to plant within 15 months of the planting date, Stofferahn said.  

The RMA clarification came after the North Dakota House passed a resolution asking that crop insurance be used to reimburse producers on cropland inundated in the Devils Lake Basin.

This is a big issue not just in North Dakota, but in all of the Prairie Pothole region that includes parts of Minnesota, South Dakota and Iowa as well. In the past, if farmers were able to work up soil around the edge of a pothole in July or August, that might have been considered “available to plant,” but no longer if the crop would normally be planted in the spring.

“Companies are being much more cautious about what’s being considered available to plant,” Stofferahn says.

RMA’s Billings, Montana Office Regional Director, Doug Hagel, explains how the 15-month rule works. If a farm was available to plant in 2010 on the closing date to buy crop insurance (March 15 in much of the Corn Belt) and then the grower wasn’t able to plant a crop that year, he or she would be eligible for a prevented planting payment. Then for 2011, if he wasn’t able to plant by the final plant date, roughly 15 months later, another prevented planting payment would be made. But the following year, a crop would have to be planted and harvested and would be eligible for normal coverage but not prevented planting. After that, the prevented planting cycle starts again.

“People forget that the purpose of the program was to insure crops,” Hagel says. “It was never to insure land.”

In some cases, putting that land into conservation programs might be an option, he says.

Hagel says the problem stems from changing rainfall patterns in the northern Plains. Areas of eastern North Dakota that once got 17 to 24 inches of rainfall a year are now getting from 35 to 50 inches, he says.

“It is unfortunate,” he says. “It’s very tough. A lot of these guys being hit with this problem now, their fathers farmed that land and their grandfathers farmed that land.

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