It is no easy decision for farmers to figure out if they are going to take the prevented planting option when available in their crop insurance coverage, and obviously that decision has far-reaching consequences.
“There are a gazillion scenarios that you can run through in all of this,” said Brent Gloy, Purdue University ag economist.
In some areas of the country, especially Indiana and Ohio, corn planting is so far behind that many farmers might take the prevented planting option. Prevented planting will mean a big hit to the income of ag retailers and crop consultants who might have been providing service in a normal year. It also will have major impact on the total corn harvest anticipated this year, which will likely run up the price of corn on the Board of Trade.
It is the incremental cost already invested in planting a corn crop that should be a big part of the decision on whether to plant or not plant, Gloy explained in a Webinar news conference on May 27.
“The other thing that is absolutely important is the type and amount of insurance coverage that a grower has. Look at revenue guarantees on the policy and then compare options,” he said.
The possibilities for the 2011 crop year are to take the preventive planting option, go ahead and plant corn but plant late or switch to planting soybeans. And a discussion between grower and the crop insurance agent is extremely important before a final decision is made.
“What seems to be important is how much incremental cost you have got left to produce the corn crop. For those people who don’t have very many costs left there is a much stronger incentive to go ahead and plant the corn crop,” Gloy suggested. “If you are in another situation, where you have a lot of incremental costs so that you are going to have to put a lot of fertilizer down and you haven’t done much of that already, then there is more incentive to go ahead and take preventive planting. But the decisions is very complex because one of the things that you get by going ahead and planting is you get the option that your revenue guarantee can increase. If prices would happen to go up, your revenue guarantee is going to go up unless you have a harvest price exclusion on your crop insurance. So, you are getting some option there that would also make your yields more important.”
Gloy repeated that if a grower has got a lot of fertilizer down and doesn’t have a lot of extra fertilizer to put down then there is a stronger incentive to go ahead and plant the corn. If a grower is not in that scenario and will have to make a lot of investment, then he or she should think real hard about projected corn yields and what they might harvest.
Insurance agent discussion also needs to include what happens if a grower goes ahead and plants the corn, and a good amount of corn is produced but it is really low quality and does not meet No. 2 standard. How do those bushels count in terms of crop insurance, and if they count as true yield, then they will reduce the grower’s crop insurance payment, which would be a really bad scenario for late planting? Gloy said this is something easily overlooked in making a decision.
For additional information about crop insurance planting options, an article by George Patrick is on the Chat-n-Chew Cafe Web site.