By Eric Richer and Chris Bruynis, Ohio State University Extension Eeducators
Planting progress goes differently every year and in each part of the state. This year is no different in Ohio. Some places got in early and are finished. Others had their “normal” planting progress with “normal” Mother Nature breaks, perhaps with some re-plant needed. And still others have not had ideal conditions all spring to plant. As such, we have received some recent calls regarding the mechanics and economics of utilizing the Prevent Plant through crop insurance this year in certain parts of the state. First and foremost, we are not crop insurance agents, so speaking with your agent is of utmost importance. In this article, we will walk through an example on the economics of electing Prevent Plant.
In Ohio, once you arrive at the final plant date of June 5 for corn (already passed) and June 20 for soybeans, you basically have 3 options in a corn scenario.
Your first option is to plant the corn crop no matter what the date is on the calendar. Up until the final plant date, you are eligible for your full guarantee at the level you have selected. This article will reference the 2022 Ohio Corn Production Enterprise Budget, the 20-year USDA-NASS Trendline Ohio corn yield of 184 bu/ac as the Actual Production History (APH) and $5.90/bu 2022 base price for corn. So for your full guarantee at 80% coverage: 184 bu/ac APH x $5.90 x 80% coverage = $868/acre. If you elect to plant corn after June 5, you will incur a 1% reduction in your guarantee up through June 25. If you plant your corn after June 25, you can choose not to insure your corn crop or you can insure at the policy’s prevent plant revenue level. For example, if you plant corn on June 8, the guarantee formula (184 APH, 80% coverage) would be: 80% x 184 bu/ac x $5.90 x 97% = $842/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 be charged for the soybean insurance premium, not the corn premium. A key agronomy question: Did you apply chemistry that does not allow you to plant soybean? June weather (local and regional), supply/demand economics, geo-political issues, trade policy and input options increase the complexity of this decision.
Your last option is to file for Prevent Plant, assuming you did not get corn planted by June 5. The mechanics of prevented plant deserve a review to ensure understanding. New in 2021, is that there must have been a crop planted, harvested, and insured on the acres in question in one of the last four years to qualify for prevent plant. Consult your crop insurance agent to determine your total eligible acres for each crop, as this is a key question. Prevent plant covers Yield Protection (YP), Revenue Protection (RP) and Revenue Protection with Harvest Price Exclusion (RPHPE) policies and references the February new crop corn pricing period (aka base price) of $5.90/bu for the 2022 corn crop ($14.33/bu for soybean). To be very clear, prevent plant indemnities will not be re-adjusted to a higher harvest price; prevent plant indemnities are based on the February (base) price only. A corn policy has a standard 55% Prevent Plant guarantee (buy-up available to 60%) and soybeans a standard 60% guarantee (with buy-up available to 65%). To further be eligible for Prevent Plant, at least 20 acres or 20% of that unit must not get planted (the lesser of the two). Prevented Plant does not affect your yield history as long as you do not plant a second crop. Also, prevent plant claims can be denied if not common to the area.
So, to continue our example from above, the indemnity for prevented plant corn would be: 184 bu/ac x $5.90 x 80% coverage x 55% prevent plant rate = $477/acre. Please remember that this calculation can vary widely based on coverage level elected (50-85%), prevent plant buy up (55% to 60% for corn) and your farm/field’s APH. . In our example, this $477/acre would also be the amount at which you could chose to insure a corn crop planted after June 25 (versus no insurance at all).
To be sure, there are costs besides the premium that are associated with Prevent Plant. Are there ‘restocking fees’ associated with returned seed or other inputs? How much fertilizer has already been applied? What are the year-long weed control costs? Does my applied chemistry limit my options? If utilizing cover crops, what will their cost be? Will there be enough to address Fixed Costs of Land, Labor, Management? And finally, are their opportunity costs (marketing) missed because of taking Prevent Plant? While this article is not intended to address all these questions, they are questions you should raise and probably already have.
Once the “Net to Prevent Plant” is known (ie PP Indemnity minus all fixed costs plus any variable costs), the simple economic comparison to make is against your farm’s estimated Return Above Total Costs. According to the 2022 Ohio Corn Enterprise Budget, for trendline yields and costs, the Return Above Total Costs is $232 per acre. As planting date gets later and later, you will have to evaluate how much of a yield (ie revenue) reduction you will need to plug into your enterprise budget.
In the end, every farmer and situation is unique. It is important to run the numbers for yourself to make an informed farm management decision.