Waterlogged growers eye prevented planting

May 31, 2013
by DTN

In south-central Minnesota, farmer Mark Nowak has already buried hopes for the remaining 25 percent of his 2013 corn crop. With only 3-1/2 days suitable for planting this spring and a chance for rain every day now through June 8, Nowak plans to file a prevented planting claim when his crop insurance final planting date hits May 31. Now he will devote his attention to salvaging his soybean crop and getting it planted in time for full insurance coverage June 10.

It’s the first time in his 40-year career this ground won’t get planted and, with a 220-bu. yield average, it’s some of the nation’s top corn ground.

After paying cash rent, machinery costs, $20/acre for preplant grass herbicide, $245/acre in fertilizer and $10/acre seeding a cover crop, Nowak expects to barely cover his $600/acre overhead. Gone is the $200/acre profit margin he expected earlier this year. “We’re in the bull’s eye of the distressed planting area,” he said. “But without that cash flow from insurance, it would be a train wreck.”

Dates and decisions vary by region of the country and insurance coverage. But beginning June 1, most Midwest corn producers with unplanted acres have three choices: 1) Plant corn as soon as possible with a reduced guarantee through June 25; 2) Shift to soybeans with full insurance coverage; or 3) Apply for prevented planting on corn. Prevented planting acres are insured at 60 percent of their original guarantee and must have a cover crop established on them.

Howard County, IA, farmer Eric Hawbaker worries he will lose money on every option in his dwindling playbook. With 2.6” of rain over the weekend and forecasts for 3” to 5” this week, it could be June 10 before he’s able to plant the last 420 acres of corn or even start the first of his 500 acres of soybeans.

Hawbaker calculates he could make $1.50/acre or lose as much as $100/acre if he elected prevented planting on his corn acres, depending on whether he’d pre-applied fertilizer and pesticides and whether he could return unused seed corn. Switching to soybeans from corn makes no economic sense to him, given the differentials in crop insurance price guarantees per acre. He also doesn’t want to end up with a prevented planting claim on soybeans, which will whittle his returns even more. That leaves prevented planting corn, but he’s not sure.

“This far north, it just doesn’t pay to plant corn past June 10. The old timers say it could be like 1973 again—40 bu. corn, 40 percent moisture and 40 lb. test weight. We’d owe our elevators money if we delivered that,” Hawbaker said. “On the other hand, I have landlords who would look at me sideways if I didn’t plant a crop, so I will probably keep planting corn until June 10 if I can.”

Nationwide, corn planting had reached 86 percent complete by the week ending May 26, slightly below the fiveyear average. But slogging in that last 14 percent could be a challenge given saturation from last week’s Midwest storms and forecasts for heavy rains this week. In some of the country’s most productive corn counties, more than 1.5 million acres of Minnesota corn and 2 million acres of Iowa corn have yet to be planted. Iowa Secretary of Agriculture Bill Northey warned in a May 28 tweet: It’s “mostly too wet to plant and replant now.”

“I’ve seen this emotion before. It’s like the stages of death and grieving,” Iowa State University Extension’s Steve Johnson told DTN. While he encouraged growers to discuss the options with their agents now, Johnson believes it’s too early for Iowans to decide with finality and urges them to keep an open mind during the next two weeks.

Reduced coverage

Crop insurance’s final planting date for corn varies by locale, but runs May 25 for much of northern Minnesota and the Dakotas, May 31 for southern Minnesota and Iowa, and as late as June 5 in some other areas. After that date, full insurance coverage is reduced 1 percent per day for 25 days during a “late” planting period. Generally, that’s far better protection than prevented planting, and it adjusts the price guarantee at harvest on Revenue Protection policies. In contrast, prevented planting compensates corn only at the spring price of $5.65 on corn and $12.87 on soybeans, unadjusted if harvest prices are higher.

“If I was a producer, there aren’t a lot of situations where I’d be happy to take prevented planting,” said Scott Silveus, president of Silveus Insurance, Warsaw, IN. “We do a lot of profitability analysis for our growers, and most of them need prices at mid-$5 to break even. Taking prevented planting eliminates your input costs, but you get only 60 percent of your insurance coverage.” Most often, it’s worth getting a crop in the ground so you qualify for full insurance, if that’s physically possible, he added.

Johnson agreed. “Rarely would we ever see someone take a prevented plant in Iowa. Their choices, in order of priority, are replant, delayed planting and then prevented planting as a last resort,” Johnson said. He acknowledges claims may be more common in parts of North Dakota, Minnesota and Wisconsin because of the smaller planting window and threat of earlier frost, but Iowa’s higher land costs give growers higher overhead and incentives to keep planting, Johnson said.

“Prevented planting’s indemnity is only 60 percent of the revenue guarantee,” he noted. “It’s hard to collect about $500 per acre on corn or $300 on soybeans for a prevented planting claim when the landlord has asked for that amount in cash rent.”

While growers have 10 days to two weeks to decide their options, both Silveus and Keith Gehling, a crop insurance agent with Iowabased AgriSource Inc., have already handled prevented planting claims for corn clients in Missouri. Notification this early isn’t mandatory, and it can be reversed if a grower changes his mind. However, “the sooner you can get an adjuster out to look at your fields, the better information you have,” Gehling said. “Not only will insurance companies need to staff up, but producers need to be in contact with their agents to develop a Plan B if it keeps raining.”

Richard Guse of Waseca, MN, has already chosen his Plan B. He’s only been able to plant 60 percent of the corn he intended this season. With the long-term weather forecast, he doesn’t see a chance to get into the field to finish.

“We hear about risk management all the time. If I take a prevented planted option on corn, I know exactly what my payment is today, no risk,” he said. That’s something he can afford since his rents are reasonable and he had not forward sold his crop as aggressively as normal, so he doesn’t need physical bushels to fill his contracts. In most years, he would be 40 percent or 50 percent sold at this stage.

“A prevented planting claim is not something farmers enjoy doing but you pay for it and that’s why it’s there,” Guse said. — Marcia Zarley Taylor, DTN