Market Commentary for 5/31/24
Today was the final planting date for all of Iowa, most of Minnesota and Wisconsin, and southeast North Dakota. So, now everyone wants to know how many acres will go into prevent plant.
Some market participants claim prevent plant acres will be higher than normal, but I’m not so sure.
One, it is usually more profitable for farmers to push past the last planting date, if they can get crops planted within the next 10 days, because they only lose 1% coverage each of those days. However, if they take prevent plant, they only get around 55% coverage.
Two, farmers can only reduce some of their input costs when taking prevent plant. Obviously seed costs and the expense to plant and harvest fields are saved. However, many farmers still need to spray their fields two or three times, which means at least some chemical costs are unavoidable. Plus, there is still the cost of the land, either through rent or bank payments as well as equipment payments. And the cost of living remains the same, so a salary needs to be figured in breakeven costs too.
Often it can come down to fertilizer costs, because it is such a big expense. If fertilizer has already been applied, it is probably more profitable to plant. If not, the farmer may reconsider. Based on many conversations with farmers considering prevent plant, about half have already applied fertilizer and plan to plant into the first part of June.
Another issue with taking prevent plant, is that the revenue from insurance is based on a 10-year average yield. In many cases this could be nearly 10 bushels per acre lower than what farmers anticipate they will produce in an average year. Taking prevent plant can significantly reduce potential income.
Also, while planting late does increase weather risk, concerns may be overstated. For instance, the further south a farm is located, the less risk there is for an early frost. And while August can be drier than July, that isn’t always the case. Many farmers who planted on June 10th in 2019 managed to raise a trendline crop and some even produced an above average yield.
Bottomline
I don’t see prevent plant being higher than normal this year. The economics will incentivize most farmers to push through and plant in June, even if it is a little late. Plus, the planting pace in northern states is way ahead of normal. It would not surprise me this year if there were fewer prevent plant acres compared to an average year.
If you would like to understand more about how to protect downside risk and use storage to increase profits for your operation, please reach out to me at jon@superiorfeed.com.
Want to read more by Jon Scheve?
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How I Used Storage and Risk Management Strategies to Get Nearly $6 for My 2023 Corn Crop
