An Update on Prevented Planting Decisions and Related Government Payments
Monte Vandeveer (firstname.lastname@example.org) – K‐State Department of Ag Economics
Daniel O’Brien (email@example.com) – K‐State Department of Ag Economics
Address of Article on the KSU AgManager Website:
Last week we posted an article on KSU’s AgManager.info website which discussed Prevented Planting rules and options for producers facing wet planting conditions for their insured corn crop. A number of new developments, particularly the May 23rd announcement of additional Market Facilitation Program payments, call for an updated discussion of farmer options.
Prevented Planting Dates and Deadlines
To review, many Kansas producers who insured their intended 2019 corn acres are nearing or already past the “Final Planting Date” (FPD) deadline, which marks the latest date for which they can plant their corn crop and still obtain the full level of crop insurance coverage. The FPD was May 15 for southeast Kansas, May 25 for central and northeast Kansas, and May 31 for western Kansas. Refer again to the map in last week’s article to see which zone includes your county.
Once the FPD passes, producers enter what is called the “Late Planting Period” (LPP), during which corn may still be planted, but the level of insurance coverage will decline day by day. In particular, the production guarantee (= APH yield x % guarantee level) will decline 1 percent for each day after the FPD that a particular acre gets planted.
An example: consider a non‐irrigated corn producer who has an APH yield of 120 bushels per acre and has chosen the 75% coverage level. His/her production guarantee for acres planted up through the FPD is 90 bushels per acre (= 120 bu/a APH x 75% coverage). For acres planted, say, 10 days into the LPP, the production guarantee is reduced by 10 percent (= 90 bu/a x 90% = 81 bu/a).
Producers who DO plant corn during the LPP must keep a running tally of which acres are planted day by day, since each day’s planted acreage will have a different production guarantee.
For corn in Kansas, the LPP extends another 20 days after the FPD. This means the final day of the LPP is June 4 for southeast Kansas, June 14 for central and northeast Kansas, and June 20 for western Kansas. If insurable causes of loss continue to delay planting past the LPP, corn may still be planted and insured after the LPP ends. Acres planted at this point would receive a production guarantee of 55 percent of the original APH yield. Our example producer above would thus have a production guarantee of 120 bu/a x 55% = 66 bu/a.
Announcement of Market Facilitation Program payments
On May 23, 2019, the Trump Administration announced it would provide additional Market Facilitation Program (MFP) payments for agricultural producers affected by lost markets in the ongoing trade disputes with China and other countries. These direct payments to farmers are expected to total $14.5 billion dollars and will be provided for producers of more than 20 covered commodities. Many details have yet to be released, but the May 23 announcement did include some important bits of information.
Most importantly, affected producers will receive one per‐acre payment based on a single county rate, rather than separate rates by crop as done under the 2018 MFP payments. This single county rate will be based on planting patterns of the affected crops in the county, reflecting the mix of crops seen there. The USDA statement points out that, “those per acre payments are not dependent on which of those crops are planted in 2019, and therefore will not distort planting decisions. Moreover, total payment‐eligible plantings cannot exceed total 2018 plantings.”
A crucial change in the 2019 approach is the use of a single payment rate for a county, rather than the per‐bushel payments on actual crop production used in 2018. The 2018 program provided $1.65/bu for soybeans, $0.86/bu for grain sorghum, $0.14/bu for wheat, and $0.01/bu for corn, based on bushels actually produced in that crop year. One of USDA’s goals in 2019 clearly was to not favor planting of one crop over another.
In our article last week, we assumed an MFP payment would be based on the 2018 approach, where soybeans and grain sorghum might receive much larger payments than corn. Those calculations indicated that an MFP soybean payment of about $1.50/bu (slightly less than the 2018 payment rate of $1.65/bu) could be enough to tilt the planting decision toward soybeans. However, the single payment rate approach for 2019 payments should not favor the planting of one crop over another.
But it must be noted that the MFP payments will still require actual 2019 planting. That is, acres which do not eventually get planted to any crop will not be eligible for the MFP payment. This favors the planting of something (corn, soybeans, grain sorghum, or some other eligible crop) over nothing.
Planting nothing would allow the insured producer to collect the full corn PP payment from insurance, which should equal 55% of the original production guarantee. For our example farmer with a 120 bu/a APH yield, a 75% coverage level, and this year’s Projected Price of $4.00/bu, the full corn PP payment would come to:
120 𝑏𝑢/acre x $4.00/bu 𝑥 75% 𝑐𝑜𝑣𝑒𝑟𝑎𝑔𝑒 𝑥 55% 𝑃𝑃 𝑟𝑎𝑡𝑒 = $198 𝑝𝑒𝑟 𝑎𝑐𝑟𝑒
In our examples from last week’s article, an MFP payment of about $30/acre could tip the decision toward planting a late corn crop over taking the full corn PP payment for Kansas producers.
Yet another complication is the prospect for disaster aid for agriculture as part of a larger disaster relief package making its way through Congress. On May 23rd, the Senate passed a disaster aid package aimed mainly at victims of Hurricanes Michael and Florence, but also covering a variety of agricultural losses, including a specific provision for “crops prevented from planting in 2019.” See a farmdoc article from the University of Illinois for more details. While press reports indicate President Trump would sign the package into law if it clears Congress, it has been delayed in the House of Representatives (as of May 28).
Some see these disaster payments as a way to assist producers who will never be able to plant anything in 2019 – that is, for the places where wet conditions persist through the entire planting season. One rationale for these additional payments is that providing MFP payments only on planted acres penalizes those producers who were unable to plant through no fault of their own. The counter‐ argument, however, is that these disaster payments could create another incentive not to plant anything in a year when corn acres could end up desperately short. About $3 billion were appropriated for agricultural losses in the May 23 Senate version of the disaster aid bill, but it is unclear how that amount might be spread over the various affected crops and regions, should the bill finally pass the House.
Effect of late & prevented plantings & effects on markets & prices
A final factor to consider is the effect of all the late planting concerns on market prices. One would expect both total planted corn acres and actual corn yields to decline in the aggregate, but the extent of these changes is of course still guesswork. A farmdoc article examines the potential effect of fewer acres and lower yields for corn prices. It speculates that as many as 35 million acres of corn may remain unplanted as of the May 28 crop progress report, and traces this effect through the rest of the market “balance sheet” (acres, yields, exports, other usage, final stocks, etc).
See a similar analysis from Kansas State University on KSU AgManager.info titled “U.S. Corn Market Outlook in Late-May 2019 – Tight Supply-Demand & Higher Corn Prices in “New Crop” MY 2019/20″
In our Kansas planting decision, the role of rising market prices for corn is to raise the value of those bushels that do get produced. A rising market value of expected actual corn production crops would tend to favor late planting of corn relative to no planting at all.
Again, producers are encouraged to develop their own calculations, based on their own expected yields, costs, etc. Last week’s article provides examples that could be a useful starting point.
Producers are also reminded to keep in close contact with their crop insurance agents as they evaluate options, to be sure they remain in compliance with their insurance policies and to discuss the alternatives.
For more information about this publication and others, visit AgManager.info.
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