To Prevent Plant Or Not
It appears that at least 40% of the corn crop is not yet planted and if you look at Illinois, it appears that more than 75% is not planted. Most farmers are nearing the start of the crop insurance “prevent plant” date.
This allows the farmer to elect not to plant the crop due to too much water and receive a payment under crop insurance. However, if they elect to take this payment, USDA has indicated they will not make a Market Facilitation Payment (MFP) on those acres.
Other options for farmers is to take prevent plant insurance for corn and still plant a soybean crop (where applicable) and attempt to maximize their return.
With all of these options, it is tough for farmers to know which option is best. The University of Illinois provides a service called FarmDocDaily and today’s article reviews those options for Illinois farmers and most of the analysis is applicable for all farmers.
After reading the article, here are some of the key items:
- Taking a prevent plant payment appears to offer the best return for farmers assuming that prices do not appreciate materially higher than they are now and assuming only a normal drop in yields. This is true even if the farmer is unable to receive a MFP payment.
- As the MFP payment approaches $75, prevent planting loses way. However, in order to get a $75 payment, it is likely that all three payments wound have to be paid. Also, it only takes about 1,670 acres of production to hit the $125,000 limit that was in place under the 2018 MFP terms. We are not sure if the same limit applies on the 2019 crop, but if you are farming more than 5,000 acres and the payment limit remains the same and you only have one limit, then prevent planting payments will not affect your MFP payments since you have already maxed out.
- The Disaster Bill trying to get through the House also has additional provisions that may make prevent planting even more attractive. It provides the Ag Secretary the ability to increase the payment factor for corn (55%) and soybeans (60%) up to 90%. And it allows for the payment to be based on the higher of projected or harvest price. If fully enacted, these two provisions could substantially increase the prevent planting payment.
It is likely that most farmers may not know the best option until 2020 (when the third MFP payment is likely to be paid). But running numbers now for your farm should give you the data you need to make a more informed decision. I am guessing many of you are not on a tractor planting right now and would have time to run the numbers.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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