At what point should you take a prevented planting payment for soybeans? Here's what to consider.
By Gary Schnitkey, University of Illinois
Soybean planting has been delayed in many areas of the Midwest. Since final planting dates for corn have passed, farmers who have purchased the COMBO insurance policy are eligible to take prevented planting payments for corn. Soon all final planting dates for soybeans will have passed and all Midwestern farmers will be eligible for soybean prevented planting payments.
In this post, returns from prevented planting payments are compared to planting soybeans. For corn, prevented planting payments almost always will be larger than expected returns from planting soybeans in late June. Prevented planting payments for soybeans are less than prevented planting payments for corn. Taking the prevented planting payments for soybeans will become more economically attractive if soybean plantings are further delayed.
University of Illinois' Todd Gleason reports:
The Current Situation
In most cases, planting soybeans will have higher expected returns than planting corn when the planting takes place in middle to late June. Therefore, the alternatives compared in this post are planting soybeans versus taking prevented planting payments.
A previous post here summarized the implications of taking corn prevented planting payments. Ramifications for taking soybean prevented planting payments are similar to those for corn. Some details include:
- Final planting dates across the Midwest range from June 10th in the upper Midwest and western Corn-belt to June 30th in southeastern Kansas and southwest Missouri (see Figure 1).
- Once final planting dates have passed, farmers are eligible to take prevented planting payments on soybeans.
- Farmer can still plant soybeans. If they do, prevented planting payments will not be received and crop insurance guarantees will decrease 1 percent per day during the 25-day late planting period. After the late planting period is over, guarantees will be 60% of original guarantees.
- If prevented planting payments are taken, farmers cannot plant harvestable crops during the 25-day late planting period that begins on the final planting date.
- Farmers can plant a crop after the 25-day late planting period, but this will usually result in a 70% reduction in the prevented planting payment and the use of low yields in calculating future Actual Production History (APH) yields. In most cases, it will not be economical to plant another crop after the late planting period for soybeans.
Returns from taking prevented planting payments versus planting soybeans are examined for two cases. The first is when the farmer is eligible for a corn prevented planting payment. The second is when a soybean prevented planting payment is available. These situations will be examined for a specific farm situation described in the next section.
The farm has purchased a COMBO crop insurance product (i.e., Yield Protection, Revenue Protection, and Revenue Protection with Harvest Price Exclusion) for both corn and soybeans at 80% coverage levels. The Trend Adjusted Actual Production History (TA-APH) yields are 170 bushels per acre for corn and 45 bushels per acre for soybeans. The standard prevented planting factor of .60 has been selected at crop insurance sign up.
Given the above crop insurance information, prevented planting payments for both corn and soybeans can be calculated. For corn, the prevented planting payments for corn is $461 per acre (170 bushel TA-APH yield x $5.65 projected price x 80% coverage level x .60 prevented payment factor). The prevented planting payment for soybeans is $278 per acre (see Table 1).