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Crop Insurance Weighs on Farmers' Planting Decisions

June 3, 2011
 
 

By Jennifer Stewart, Purdue University

As the June 5 final planting date nears for the full crop insurance yield and revenue guarantees for corn, a Purdue Extension agricultural economist says there are a lot of factors that come into play when farmers are deciding how to manage their 2011 crop.

First, farmers need to take into consideration the type of crop insurance they've purchased for 2011 and whether or not the crop has been planted, said George Patrick.
 
There are two basic types of crop insurance. Farmer-based coverage is an individual policy based on a producer's yield history and actual yields. The farmer-based insurance includes coverage for a 25-day late planting period, replant coverage and prevented planting. In contrast, group or county insurance policies base indemnity payments on county yields and revenue.
 
"If producers have the farm-based insurance, they have a different set of management options than those who have group risk plans," Patrick said. "Farmers with the group risk plan really don't have a lot of management options as far as crop insurance is concerned."
 
Farmers with individual plans who have planted a corn crop that is now in poor condition have to decide whether to leave the crop as is, replant with the same crop or to shift to another crop.
 
"Those looking to shift to another crop need to work with their crop insurance agents to be sure they are complying with all regulations so they don't run into any problems with collecting on an indemnity," Patrick said.
 
If a producer with farm-based insurance has not yet been able to plant a crop, the decision comes down to a prevented planting payment versus late planting or perhaps a shift to soybeans. The final planting date for soybeans to qualify for the full yield and revenue guarantees is June 20.
 
Farmers who are unable to plant corn by June 5 may qualify for a prevented planting payment for corn. This payment is 60% of the guaranteed yield or revenue level they purchased for the 2011 growing season. Coverage levels range from 50% to 85% , with 65-75% historically being the most popular.
 
After June 5 for corn, and June 20 for soybeans, yield and revenue guarantee levels are reduced by 1% each day during the 25-day late planting period.
 
"It becomes a question of whether a farmer would have more net income from taking the prevented planting payment, or whether they would be better off to go ahead and plant even though they would expect to have a reduced yield," Patrick said. "So part of it would come down to what costs already have been incurred, and what additional costs would come with going ahead and trying to produce a crop. Producers need to work through the potential costs and returns on both sides."
 
One of the major costs farmers would need to consider would be fertilizer. If nitrogen already has been applied, it creates a much different situation from that of a farmer who has not yet applied fertilizer.
 
"If most of the inputs are still in the shed, farmers are probably more likely to have higher returns with prevented planting," Patrick said. "However, if everything but the seed is already in the field, farmers may find they are better off planting."
 
Patrick also said it's important to note that if a producer does take a prevented planting payment, their historical yield average, or APH, will use the 60% yield for 2011.
 
Farmers who choose a prevented planting payment may be required to plant a cover crop. Producers need to remember that in order to receive a prevented planting payment, cover crops cannot be grazed or used as a forage crop.
 
"The bottom line is that the crop insurance provisions are pretty specific in a number of instances, so farmers need to work with their crop insurance agents to make sure they are doing everything they need to in order to comply," Patrick said. "Working with an agent will help ensure producers don't run into problems with collecting on an indemnity to which they are entitled."
 
More crop insurance information and resources are available on the following websites:

 

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