Farmdoc Webinar on Prevent Plant/Late Planting Decisions

A webinar on prevent planting was conducted on June 12, 2019. Items include:

1. Todd Hubbs provided market outlook: Bullish corn, bearish soybean
2. Jonathan Coppess provided a policy outlook: Still uncertainty on Market Facilitation Program and Disaster Assistence Programs
3. Gary Schnitkey provided farmer decision making: Corn planting is coming to the end, Don’t plant soybeans on corn prevent plant acres, little downside and upside on planting on planting soybeans on intended soybean acres for the next week.

The webinar video is available on our YouTube Channel now (Click Here)

Two more webinars will be conducted on the next two Wednesdays (June 19, June 26) at 8:00 am (Central Time).  Click here to register.

 

Prevented Planting, 2019 Market Facilitation Program Payments, Disaster Assistance, and Price Dynamics

Source: Schnitkey, G., C. Zulauf, K. Swanson, R. Batts and J. Coppess, Department of Agricultural and Consumer Economics, University of Illinois

We stand at a point of extreme price and policy uncertainty.  In the Midwest, corn planting is historically late and many acres are or soon will be eligible for prevented planting payments on corn crop insurance policies.  On many farms, corn prices have not increased enough to cause net returns from planting corn to exceed net returns from prevented planting.  However, the U.S. Department of Agriculture announced a 2019 Market Facilitation Program (MFP) and has currently indicated that payments will be tied to 2019 planted acres.  The 2019 MFP could provide incentives to plant crops and not take prevented planting payments.  Moreover, this program could bring a little used option into play this year:  take 35% of the corn prevented planting payment and plant soybeans after the late planting period for corn.   Adding confusion to this situation is a disaster assistance program working its way through Congress. We provide detail on the 2019 MFP program based upon what is known at this time, and the Congressional disaster assistance bill.  Then, we evaluate farmer options at this point.  Decisions are difficult.  Corn prices have not risen enough to justify planting corn on many farms.  Yet, corn prices could increase if a large number of prevent planting acres occur.

2019 Market Facilitation Program Payments

In a May 23rd press release, the U.S. Department of Agriculture (USDA) outlined the 2019 Market Facilitation Program (MFP). This program is projected to provide $14.5 billion in direct payments to farmers of specific commodities, $4.9 billion more than the $9.6 billion spent on the 2018 MFP (Schnepf, Monke, Stubbs, and Hopkinson). Important details of this program are:

  • Payments will be based on 2019 planted acres to MFP-covered crops. USDA has initially stated that payments will not be received on prevented planting acres but the final details have yet to be released. By itself, this provision provides incentives to plant crops and not take prevented planting payments.
  • MFP-covered crops in 2019 include corn, soybeans, wheat, alfalfa hay, barley, canola, crambe, dry peas, extra-long staple cotton, flaxseed, lentils, long grain and medium grain rice, mustard seed, dried beans, oats, peanuts, rapeseed, safflower, sesame seed, small and large chickpeas, sorghum, sunflower seed, temperate japonica rice, and upland cotton.
  • There will be a single payment rate for a county. That per acre payment rate will be based on total plantings of the MFP-covered crops on the individual farm. Acres planted to an individual crop will not matter other than its contribution to total planted MFP crops on the farm.  As an example, suppose that MFP rate for a county is $50 per acre. A farm with 60 acres in corn and 40 acres in soybeans will have 100 MFP acres and receive $5,000.  The farm will also receive $5,000 if 40 acres are corn and 60 acres are soybeans.
  • Payments acres in 2019 cannot exceed the payment acres on the farm for the 2018 MFP. This restriction is designed to prevent more acres moving into covered crops, particularly from grasslands or lands typically not farmed. It will most likely be made on a Farm Service Agency (FSA) farm basis. A farm that had 80 MFP-acres in 2018 cannot receive payments on more than 80 acres in 2019.  (see, Perdue Provides More Clarity on Tariff Aid).
  • Payments will be made in three tranches, the first in late July/early August after the July 15th planting reporting date with the Farm Service Agency (FSA), November, and early January.  Whether or not the November and early January payments are made will depend on USDA determination on the need for these payments.

Many important questions remain to be answered regarding 2019 MFP payments; the answers to these questions could affect 2019 planting decisions.   The most important question is:  What are the 2019 per acre payment rates?

Click Here To Read The Entire Article

Corn vs. Soybeans in a Delayed Planting Scenario – Profit Scenarios

Source: Barry Ward, OSU Extension

Wet weather and planting delays throughout much of Ohio and the eastern Cornbelt have many producers thinking about switching corn acres to soybeans or the taking the prevented planting option of their Multiple Peril Crop Insurance policy. Ohio had 9% of intended corn acres planted by May 19th which is far behind the 5 year average of 62%. Farms with pre-plant nitrogen or herbicides applied for corn production may have no option to switch to soybeans. Seed availability may also limit choice for some. Other factors, such as strict adherence to a crop rotation or landlord considerations may limit farmer choice when it comes to switching from corn to soybean plantings in a given year. Farm leases may contain specifications on crop rotations or even what crops may be grown. There may also be unwritten agreements between parties that limit the possibility of growing soybeans in successive years.

Producers that don’t have these limitations may be considering the option of switching acres to soybeans and it will likely come down to expected profit. Field by field budgeting is recommended and with delayed planting the yield expectations change as we move later into the growing season. What will be the likely yields for a given farm for the two crop choices? A recent article, “Delayed Planting Effects on Corn Yield: A “Historical” Perspective” is a good starting point in evaluating potential yield loss due to late corn planting: https://agcrops.osu.edu/newsletter/corn-newsletter/2019-12/delayed-planting-effects-corn-yield-%E2%80%9Chistorical%E2%80%9D-perspective

A recent article highlighting faculty in the College of Food, Agricultural and environmental Sciences always provides valuable insight into the possible yield swings related to late plantings of corn and soybeans: https://cfaes.osu.edu/news/articles/late-start-planting-might-not-hurt-yields-much

Looking at some simple scenarios may get your budgeting process moving for your own fields. These scenarios are based on the 2019 crop enterprise budgets available online at: https://farmoffice.osu.edu/farm-management-tools/farm-budgets

Scenario 1 – Yield prospects remain unchanged, new estimated revenue based on today’s markets:

Corn – 170.2 bu/a & 4.00/bu

Returns Above Variable Costs     $293

Soybeans – 51.5 bu/a & 7.90/bu

Returns Above Variable Costs     $207

Price changes in the last 3 weeks have been favorable to corn and shows some advantage to corn with these assumptions using OSUE Enterprise Budgets.

Scenario 2 – Corn yield 13% lower (per OSU Agronomy Guide, planting date 5-22 through 5-27), soybean yields remain unchanged, new estimated revenue based on today’s markets:

Corn – 148 bu/a & 4.00/bu

Returns Above Variable Costs     $227

Soybeans – 51.5 bu/a & 7.90/bu

Returns Above Variable Costs     $207

The choice becomes closer as we see corn still outperforming soybeans (barely) in Returns Above Variable Costs.

Scenario 3 – Corn yield 13% lower (per OSU Agronomy Guide, planting date 5-22 through 5-27), soybean yields 5% lower, soybean seed costs higher due to higher seeding rate (additional 30,000 seeds per acre planted) for late planted soybeans, new estimated revenue based on today’s markets:

Corn – 148 bu/a & 4.00/bu

Returns Above Variable Costs     $227

Soybeans – 48.9 bu/a & 7.90/bu

Returns Above Variable Costs     $175

This choice again favors corn as the lower soybean yield due to late planting and additional seeding costs make the choice of corn somewhat stronger compared to Scenario 2.

The recent announcements of another round of Market Facilitation Payments and changes to Prevented Planting Coverage due to the pending Disaster Aid Bill may add further complexity to this choice.

As planting is delayed further into June the potential lower yields of both corn and soybeans due to a later planting window will tend to favor soybeans. These simplified scenarios are just examples and farmers should budget for the different yield, price and cost combinations based on their own numbers.

Prevent Plant…What’s That Again?

Source: Eric Richer & Chris Bruynis, OSU Extension Educators

Wet conditions in Ohio and the Eastern Corn Belt has slowed (halted?) planting progress for Ohio producers. According to the May 20th Crop Progress Report by USDA National Ag Statistics Service, Ohio had only 9% corn planted. Surprisingly that was ‘double’ what was planted the week before and well behind the 5-year average of 62% planted. In 2018, Ohio was 69% planted by this report date.

Certainly, the Prevent Plant (PP) crop insurance tool has become a hot topic this year. Many of you have had the chance to attend prevent plant meetings or speak with your crop insurance agent. If not, we will try to briefly summarize your options and strongly suggest you talk to your agent or utilize one of the calculators (see associated “Decision Tools” article by Sam Custer) to determine which option best suits your farm operation.

Your first option is to plant the corn crop by June 5, the final plant date for corn (or June 20 for soybeans). Up until the final plant date, you are eligible for your full guarantee at the level you have selected. For example, 80% coverage x 170 bu/ac APH x $4.00 = $544/acre. If you elect to plant corn after June 5, you will incur a 1% reduction in your guarantee up through June 25, at which time your corn will crop will become uninsurable. For example, if you plant corn on June 8, the guarantee formula (170 APH, 80% coverage) would be: 80% x 170 bu/ac x $4.00 x 97% = $528/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 not have the option to file a prevented plant claim (unless you arrive at June 20 unable to plant soybeans). You will be charged for the soybean insurance premium, not the corn premium. The decision tool referenced earlier will be helpful here as this is not an easy decision. June weather (local and regional), supply/demand economics, trade policy and input options increase the complexity.

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. Prevent plant covers Yield Protection (YP), Revenue Protection (RP) and Revenue Protection with Harvest Price Option policies and references the February new crop corn pricing period (aka projected price). The projected price for 2019 corn is $4.00/bu and $9.54/bu for soybeans. A corn policy has a 55% Prevent Plant guarantee (buy-up available to 60%) and soybeans a 60% guarantee (with buy-up available to 65%). In order 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. So a quick example (80% coverage, 170 bu/ac APH) for prevented plant corn would be: 80% x 170 bu/ac x $4.00 x 55% = $299/acre.

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? What are the year-long weed control costs? If utilizing cover crops, what will their cost be? What are my land costs or how do I address my land costs? Do I need to pay labor & management costs even though the land wasn’t ‘farmed’? And finally, are their opportunity costs (marketing) missed because of taking Prevent Plant? We do not have space in this article to address these but they are things to be considering.

The reporting of Prevent Plant acres-should you elect that option-is quite simple. First, the total acres of Prevent Plant corn that you can file in 2019 can be no greater that the greatest number of acres of corn you reported in any of the previous four years (2015-2018). To report Prevent Plant acres, you would first need to turn in a notice (starting June 6) to your insurance agent. Then report your Prevent Plant to USDA Farm Service Agency to get it on your acreage report. Then you will need to work with your adjuster to finalize the claim, which will generally be paid within 30 days.

Prevented planting insurance payments can qualify for a 1 year deferral for inclusion in income tax. You can qualify if you meet the following criteria:

  • You use the cash method of accounting.
  • You receive the crop insurance proceeds in the same tax year the crops are damaged.
  • You can show that under your normal business practice you would have included income from the damaged crops in any tax year following the year the damage occurred.

The third criteria is the sometimes the problem. Most can meet the criteria, although if you want reasonable audit protection, you should have records showing the normal practice of deferring sales of grain produced and harvested in year 1 subsequently stored and sold in the following year.

There are many additional questions that we could address in this article but these are the basic options to guide your thought process…unless Mother Nature just won’t cooperate!

Agriculture Improvement Act (Farm Bill) of 2018: Summary

Source: Carl Zulauf, Emeritus Professor, and Ben Brown, Program Manager – Farm Management Ohio State University, Department of Agricultural, Environmental, and Development Economics

Some information is beginning to come out regarding the new Farm Bill.  The complete farm bill is 807 pages.  Click on the following link to read the complete 9 page summary compiled by Dr. Carl Zulauf and Ben Brown  Farm Bill-196wwqa

New Farm Bill

 

Agriculture is one of Ohio’s most important industries, contributing more than $100 billion to our economy and putting food on the table for thousands of Ohio workers and people around the world.

The new farm bill was signed by President Trump Yesterday.  The link below will take you to the Senate Ag Committee’s title by title summary.

https://www.agriculture.senate.gov/imo/media/doc/Conference%20Report%20Summaries.pdf

 

 

Farm Bill Deal Includes Key Commodity Program Changes

Source: AgWeb.com

Key changes:

  • Adjusted loan rates
  • Annual choice between ARC and PLC
  • Opportunity to update yield data
  • Grassland to be removed from base acres

The four key ag committee leaders announced agreement in principle on a final farm bill Thursday. That deal includes some key changes to the Commodity Title of the bill, including adjustments sought by farm groups, according to Pro Farmer Washington Analyst Jim Wiesemeyer.

The first key change according to Wiesemeyer comes in a provision to increase loan rates while allowing for an annual election between the Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) programs. Under the previous farm bill, growers made a single selection between the two programs for the life of the farm bill.

Click here to read more ….

2018 Farm Sector Income Forecast, November

Source:  USDA ERS

Net farm income, a broad measure of profits, is forecast to decrease $9.1 billion (12.1 percent) from 2017 to $66.3 billion in 2018, after increasing $13.8 billion (22.5 percent) in 2017. Net cash farm income is forecast to decrease $8.5 billion (8.4 percent) to $93.4 billion. In inflation-adjusted 2018 dollars, net farm income is forecast to decline $10.8 billion (14.1 percent) from 2017 after increasing $13.0 billion (20.2 percent) in 2017. If realized, inflation-adjusted net farm income would be 3.3 percent above its level in 2016, which was its lowest level since 2002.

See a summary of the forecasts in the table U.S. farm sector financial indicators, 2011-2018F, or see all data tables on farm income and wealth statistics.

Net farm income and net cash farm income, 2000-18F

[In the text below, year-to-year changes in the major aggregate components of farm income are discussed only in nominaldollars unless the direction of the change is reversed when looking at the component in inflation-adjusted dollars.]

Summary Findings

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Market Facilitation Program

On August 30, 2018, the U.S. Department of Agriculture (USDA) announced its Trade Mitigation Package in response to unjustified retaliation surrounding the U.S. agricultural industry.

The Trump administration chose to employ a safeguard for America’s producers who have been negatively impacted. Thus, implementing a 3-pronged program that offers up to $12 billion to help subsidize farmers and stimulate the agricultural economy as a result of lost export sales, diminishing markets, and lower commodity prices.

The short-term package is broken down into three parts, including the Market Facilitation Program (MFP), the Food Purchase and Distribution Program, and the Agricultural Trade Promotion Program.

The following information is from Ben Brown & Haylee Zwick:

Additional Tips:

  • Acreage reports for crop commodities must be on file at local FSA office for payment eligibility
  • Crops grown for seed are currently not eligible
  • Dairy producers not currently enrolled in MPP are still eligible for payments and will follow MPP rules for new dairy operations and complete CCC-781 to establish production history
  • Producers who farm in multiple counties should apply in only their control county
  • Examples of production evidence include receipts of sale, income ledgers, custom harvesting invoices, truck scale tickets, and breeding, inventory, or vet records
  • Payment Calculation Example (Soybeans) (10,000 bu. x 50%) x $1.65 = $8,250