Editor’s note: The following was written by Carl Zulauf and Ben Brown, with Ohio State University, and Gary Schnitkey, University of Illinois professor and farm management specialist, for the University of Illinois Farmdoc Daily website Nov. 13.
Puzzlement has surrounded prevent plant acres for corn in 2019. Specifically, using Nov. 1 data from the USDA Farm Service Agency, how can corn have 11.4 million prevent plant acres when corn planted (plus failed) acres are 87.1 million?
One potential reason explored in this article is that acres intended to be planted to soybeans were claimed as corn prevent plant acres.
Prevent plant is a provision of individual farm yield and revenue insurance but not of area yield and revenue insurance. Once an insured cause of loss causes planting to be delayed until the final insurance plant date set by the Risk Management Agency, the farm has the management option of accepting a prevent plant payment in lieu of planting the crop.
Under RMA rules, prevent plant can be taken only for crops planted on an insured unit in one of the four preceding crop years, the farmer must show intention to plant the crop in the current year, and prevent plant is capped at the highest acres planted to the crop over the four prior years minus acres planted to the crop in the current year with adjustment if the insured unit increases in size.
To illustrate, assume an insured unit of 600 acres, a high of 400 acres planted to corn in one of the last four years, and 0 acres planted to corn before this year’s final insurance plant date. Prevent plant for corn can be taken on 400 acres.
The remaining 200 acres can be planted to a crop other than corn or put into prevent plant for a crop that was planted on the insured unit during the last four years and its final insurance plant date has passed.
Within the greater Corn Belt, corn and soybeans are often options for the same land and are often planted during the same time window. However, corn’s final insurance plant date commonly comes before soybean’s final insurance plant date for a given geographical area.
The prevent plant coverage factor is set by RMA based on analysis of the share of production costs incurred before planting. It currently is 55% for corn and 60% for soybeans.
Prior to the 2017 crop, corn’s prevent plant coverage factor was 60%. RMA reduced it after reviewing pre-plant costs.
Prevent plant payment for 2019 U.S. corn and soybeans is estimated using the above formula, U.S. linear trendline yield as the APH insurance yield, average 2019 insurance coverage level elected by U.S. farms and projected insurance price for the February price discovery period.
Given these values, prevent plant payment is 40% higher for corn than soybeans ($284/acre vs. $202/acre).
If the above example farm had intended to plant 300 acres to both corn and soybeans, taking corn prevent plant payment on 400 instead of 300 acres is worth $8,200 to the farm ($82/acre times 100-acre difference between the four-year high of 400 corn acres and 300 intended corn acres).
The difference between corn and soybean prevent plant payment for 2019 is consistent with the difference for the 2007-18 crops. Prevent plant payment per acre is at least 30% higher for corn in each year using the same calculation as in the preceding paragraph.
Because prevent plant payment per acre is notably higher for corn than soybeans and given the planting interactions between corn and soybeans, it should not be a surprise that corn dominates soybean prevent plant acres.
Using USDA FSA data, corn’s share of corn-soybean prevent plant acres in 2019 is 72% vs. corn’s 54% share of corn-soybean plant-failed acres. Over 2007-19, corn’s average share of corn-soybean prevent plant acres is 65%, but it climbs to 75% for 2015-19.
In contrast, corn’s average share of FSA reported corn plus soybean plant-failed acres is 53% for 2007-19 and 51% 2015-19.
An incentive thus exists to take prevent plant for corn to the maximum extent possible, whether corn or soybeans is the intended crop. Consistent with this financial incentive, corn comprises 72% of corn-soybean prevent plant acres in 2019 but only 54% of corn-soybean planted and failed acres.
Thus, part of the explanation for the large number of corn prevent plant acres in 2019 is likely to be that acres intended to be planted to soybeans were claimed as corn prevent plant acres.
This story for the 2019 crop is consistent with historical experience. Moreover, corn’s share of corn-soybean prevent plant acres appears to be increasing over time.
A prevent plant claim can occur only after an insured loss, such as weather, delays planting until after the final insurance plant date. Given this condition and assuming everything else is constant, the higher the prevent plant payment, the greater the incentive not to plant, specifically soybeans in the case examined in this article. Fewer acres, smaller supply and higher prices result, negatively impacting input suppliers, output users and consumers.
The preceding point prompts a policy question, “Is it good public policy for U.S. society as a whole to allow corn prevent plant payment to be claimed for acres intended to be planted to soybeans?”
Should the U.S. body politic decide that this is a policy issue, potential policy options include:
- Set the prevent plant payment rate at the weighted average rate based on acres planted on the farm over the last four years, or at the lowest payment rate among crops planted on the insured unit over the last 4 years.
- Make prevent plant a stand-alone option, similar to Harvest Price Option, which farms buy for a specified number of acres of a specified crop.