To Dry to Plant? [1]

Great Plains grain sorghum growers (includes Western Kansas ) are faced with very dry conditions. If they plant in these dry conditions it is very likely to cause the soil to blow creating dust storms. However, the procedure to collect prevented planting payments is not real clear. If one plants in soil that is too dry to germinate the seed that is not considered an insurable loss. Growers that have not had any rain will likely prefer to collect prevented planting payments under their crop insurance contract, rather than plant late and receive reduced coverage. June 25 was the final planting date for grain sorghum in Kansas .

Soybean growers in the eastern cornbelt have the opposite problem, too much moisture. The final planting date in most of those locations was June 20, 2002 (planting dates vary by county). If they have not been able to plant soybeans, then growers have the option to plant late with a 1% reduction in coverage for each late day or claim the prevented planting crop insurance payment.

If the grower elects to plant soybeans he/she will incur additional costs and very few people expect the price of soybeans to exceed the county loan rate. Those growers who purchased the higher price election in the MPCI contract have a larger financial incentive not to plant and collect the prevented planting payment.

Revenue Insurance Provides Less Coverage. Revenue insurance will provide smaller prevented planting payments than MPCI because of the lower price election of $4.50. Because the yield is zero under prevented planting, there is no “revenue” loss, only yield loss. Because there is only yield loss, the MPCI pays a larger prevented planting payment because of the higher $5.00 price election.

Soybean growers who selected the highest coverage are most likely to claim prevented planting payments rather than plant late. If more of the variable cost have been “sunk” combined with lower coverages, growers are likely to be better off planting the crop late.

However, after the soil has dried out sufficiently, it is also possible that the grower could plant a cover crop. In fact, growers are encouraged to plant a cover crop. This cover crop can be a forage or grass that can be salvaged for livestock grazing and/or haying. Therefore, it is possible there would be additional income for growers electing the prevented planting payment.

Other reasons growers might chose to plant a crop late, may include landlords who object to not planting a crop even though in this case it may pay to not plant a crop. In addition, some growers themselves would prefer to plant a crop late, rather then leave the land idle.

Growers should check with their crop insurance agent and loss adjuster to determine the amount of the indemnity payment rather then estimate any indemnity payment. The decision of whether to claim the prevented planting payment will have to occur fairly soon because in most locations the final late planting date has passed.

More Prevented Planting Issues. Prevented planting would have been included in CAT, MPCI, and the revenue insurance products. The base prevented planting is 60 percent of the guarantee that was purchased, with an option to purchase a 65 or 70 percent of the guarantee as a prevented planting guarantee. Growers needed to purchase the higher prevented planting guarantee before the end of sign-up (March 15 for most of the United States ).

In order to be eligible for prevented planting payments, growers had to meet the 20/20 rule. This means growers had to have the lesser of 20 percent of the insurance unit prevented from planting or 20 acres. It also had to be clear that the grower was prevented from planting and simply did not make the choice not to plant. If the area is planted but an individual grower failed to plant they may not be eligible for any prevented planting payment. It really depends on why the grower did not plant the crop. There is also a limit on the number of years a grower can claim prevented planting payments on the same acre. Growers should check with their agent to determine the underwriting rules that effect their situation.

Group Risk Plan. Those growers who purchased the Group Risk Plan (GRP) and the Group Revenue Insurance Plan (GRIP) are effectively not eligible for prevented planting payments. These insurance plans’ indemnity payments are based totally on the performance of the county and have nothing (little) to do with the individual grower. Therefore, if a grower were prevented from planting an indemnity payment would only occur if the county percent of yield loss were great enough to trigger the county-based payment. The county yield is measured based upon the total bushels produced divided by the number of planted acres in the county. Therefore, if the acres were never planted they were never counted as part of the county loss. As a result, growers who purchased these two contracts effectively do not have any prevented planting coverage. Growers with these contracts will likely be better off planting any available crop even if it is planted past the normal planting dates, because they are not eligible for any prevented planting payments.

Clearly under the GRP contract there is a much larger economic incentive to plant the crop than is the case where the grower is past the normal planting dates with an APH guarantee. This is an example of why some public policy makers prefer the GRP approach. The GRP approach creates few if any incentives for growers to reduce production or the number of planted acres.

Growers Must Plant. Growers are required to plant the crop if it is possible. Growers do not have the option just to not plant and collect a prevented planting payment. Grower must have been prevented from planting soybeans or grain sorghum prior to the final planting date before they can collect a prevented planting payment.

Because growers are already past the final planting date for soybeans and grain sorghum the grower is already eligible to claim a prevented planting payment. Once the grower is eligible for claiming the prevented planting payments then he/she has the additional alternatives of planting the crop but with reduced coverage or planting a substitute crop. However, growers are not required to plant a substitute crop or to plant a crop late and accept lower coverage.

Some growers may think they are eligible for a prevented planting payment but that may not be the case. Growers that normally have been planting 200 acres of grain sorghum cannot claim that they intended to plant a 1,000 acres this year and the resulting prevented planting payment on 1,000 acres. In addition, there are a minimum number of acres that must be prevented from planting before one is eligible for a prevented planting claim. For example, a wet spot in the middle of the field that is not planted would not make the grower eligible for prevented planting payments. Therefore, the best source for determining the eligibility and the size of any prevented planting payment, growers should first check with their insurance agent and probably the loss adjuster to determine the amount and eligibility for prevented planting payments.

Summary. A decision to plant soybeans or grain sorghum late is not clear-cut. Growers, who purchased higher insurance coverage levels, increase the odds they will likely take the prevented planting payment rather than plant late. Soybean growers with revenue insurance coverage will likely find it to their advantage to plant late because of the lower $4.50 price election. Growers that have already sunk some of the variable cost (hired labor may be available as full time only) in to the crop or more likely to plant late rather than claim the prevented planting payment. GRP insured growers will want to plant assuming expected revenues exceed variable cost, because there is no prevented planting payment.

[1]Prepared by G. A. (Art) Barnaby, Jr., Professor, Department of Agricultural Economics, K-State Research and Extension, Kansas State University, Manhattan, KS 66506, June 26, 2002, Phone 785-532-1515, e-mail – abarnaby@agecon.ksu.edu.