Risk Management with Insurance Tools
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Corn Final Planting Date Approaching
May 26, 2011
With the Final Planting Dates for Corn approaching I wanted to go over a few options that are available if Corn not planted by its Final Planting Date. I have also included some important points to remember about Prevented Planting. I will cover replant and first crop/second crop options in upcoming blog posts.
Take Prevented Planting:
· Submit a Prevented Planting claim. A Prevented Planting claim will receive 60% of the original guarantee. There is an option to buy up prevented planting coverage to a 65% or 70% level but that needed to be done by the insurance deadline date. No other crops can be planted on these acres other than approved cover crops. Prevented Planting acres will not affect your APH in this instance.
Example: Insured producer selects 75% coverage level on insurance policy resulting in $75,000 in total coverage. Take $75,000 X 60% to get a PP payment of $45,000.
· Submit a Prevented Planting claim and plant a second insurable crop on or before the end of the Late Planting Period. If the second crop is planted before the late planting period, coverage for the second crop can replace the coverage for first. No Prevented Planting payment will be paid on the first crop.
· Submit a Prevented Planting claim and plant a second insurance crop after the first crops Late Planting Period: If the second crop is planted after the late planting period the second crop can be insured and a payment of 35% of the prevented planting payment will apply to the corn acres. Also, only 35% of the original premium for the policy on those acres will be charged. Keep in mind that depending on when you switch from corn to insured soybeans you may also run into Late Planting Period rules for the soybeans if they are planted after their Final Planting date. In this case the prevented planted acres will receive a yield equal to 60% of the approved yield, which will now be part of the 10-year history.
Example: Insured producer selects 75% coverage level on insurance policy resulting in $75,000 in total coverage. Since another crop is being planted the indemnity payment is reduced to 35% of the Prevented Planting guarantee so multiply $75,000 X 60% X 35% to get a payment of $15,750.
Plant during the Late Planting Period:
· The late plating period generally lasts for 25 days starting on the date of the final planting date. Acres planted within this window will receive 1% less coverage per day. Acres planted after the late planting period can still be insured at the prevented planting level which again is 60% of the original guarantee. Remember that the late planted acres will be combined with any acres planted before the late planting window to determine your average guarantee.
Example: Insured producer plants corn on June 12 when the Final Plant Date was June 5. The insured producer planted seven days after the final planting date for corn; thus the production guarantee or amount of insurance is reduced 7%. $75,000 X 7% =$5,250. Take $75,000-$5,250 to get the new insurance coverage of $69,750.
A few other items to remember about Prevent Planting this year:
· Prevented Planting acres must be 20 acres or more or 20% of the insurable acres in a unit.
· A Prevented Planting claim should be reported to the loss adjustor within 72 hours after the decision has been made that the crop cannot be planted.
· Taking prevented planted could affect a farmers ability to receive the enterprise unit discount.
· Prevented Planting is not a voluntarily option. If famers surrounding you or in your area was able to get their corn in the ground there is a chance that your Prevented Planting claim will not get approved.
· To be eligible for a Prevented Planting claim, a farmer must have “planted and harvested” or insured the crop in at least one of the past three years.
· Eligible acres (base acres) will be based on the most crop acres you have planted or prevent planted in one of the last 4 years.
· Prevented Planting payments will be based on the Spring Price only.
· If corn is prevented from being planted and the remaining eligible acres are for another crop with a higher PP payment the payment received will continue to be based on the lesser amount. If the only remaining eligible acres have a lower PP payment the payment will be based on the lower amount.
· If another person plants a second crop on any of the PP acreage (first insured crop) after the late planting period (Final Plant date if the late plant period is not applicable) for the PP crop, then the Indemnity will be 35% payment on the first crop. (It makes no difference if the insured of the 1st crop has any interest in the 2nd crop.).
· Only one Prevented Planting payment may be received by the insured or any other person (excluding share arrangement) for each acre for the crop year, unless the insured meets the requirement for double cropping. Double cropping must be an insurable practice in the county for the crop.
This is for informational purposes. Please contact me directly or talk to another insurance agent before making any definite decisions.
If you have any questions about Prevented Planting or want help determining what option is the most beneficial for your operation I can be reached at 707-365-0601 or you can email me at Jamie@GulkeGroup.com.
There are substantial risks involved with both futures and options trading. While risk is limited to purchase price when buying an option, it is not limited when selling an option. Commodity trading and other speculative/ hedging investment practices involve substantial risk of loss. Past results are not necessarily indicative of future results when utilizing the commodities markets. This material and any views expressed herein are provided for informational purposes only and should not be construed in any way as an endorsement or inducement to invest.