Given the current situation, the prevent plant provision in crop insurance is a potentially important acreage issue, said agricultural economists at Ohio State University and the University of Illinois in an analysis in farmdocdaily.
Smaller than expected South American soybean production, the Ukraine-Russia War, and little-to-no expected increase in US principal crop acres in 2022 has created a tight supply/demand situation for grains and oilseeds.
PREVENT PLANT OVERVIEW
Prevent plant is a provision in individual farm yield and revenue insurance contracts, the economists said. Premiums for these contracts are subsidized by the federal government.
Specifically, if an insured cause of loss, such as excessive moisture, delays planting to or after a date set by the USDA’s Risk Management Agency, a farmer can (1) plant the planned crop, (2) not plant a crop and take a prevent plant payment or (3) take a partial prevent plant payment and plant a crop with restrictions.
Anecdotal evidence suggests the first two options are the most common, the economists said. They also are the starkest choices.
The initial prevent plant date varies by region and crop, but for many spring-planted crops occurs from late May through late June.
PREVENT PLANT – HISTORICAL ROLE
Prevent plant has averaged 5.6 million acres per year since 2007, the first year electronic data are available from USDA’s Farm Service Agency. Given the role of weather, it was not surprising to the economists that the range is large: from 1.2 million acres in 2012 to 19.6 million in 2019.
In USDA’s March 2022 acreage report, US farmers planned to plant 248.7 million acres to corn, cotton, rice, sorghum, soybeans and wheat, they said. These crops account for 99% of FSA prevent plant acres, with corn, wheat and soybeans having individual shares of 44%, 24% and 20%, respectively.
Currently, RMA analysis has determined that 55% of corn and 60% of soybean expenses, including land, are incurred prior to planting, the economists said. In other words, 45% of corn and 40% of soybean expenses, including land, are incurred during and after plating. The latter share of costs can be avoided by not planting but are incurred if the crop is planted.
Prevent plant becomes more attractive if the share of expenses incurred prior to planting is lower than RMA’s prevent-plant coverage factor.
Using RMA’s shares and assuming expected yield is 16% lower for corn and 25% lower for soybeans than trend yield on the first prevent plant date, price would need to exceed $5.73 for corn and $15.16 for soybeans to provide a per-acre return that exceeds the crop’s net prevent plant payment plus the costs incurred during and after planting, they said.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $137.25 to $147.00 per cwt, compared with last week’s range of $139.77 to $147.00. FOB dressed steers, and heifers went for $220.50 to $228.60 per cwt, versus $219.04 to $227.96.
The USDA choice cutout Thursday was down $4.56 per cwt at $255.18, while select was down $1.87 at $245.81. The choice/select spread narrowed to $9.37 from $12.06 with 126 loads of fabricated product and 33 loads of trimmings and grinds sold into the spot market.
The USDA reported that basis bids for corn from feeders in the Southern Plains were unchanged at $1.55 to $1.65 a bushel over the Jul futures and for southwest Kansas were steady at even the Jul, which settled at $7.97 1/2 a bushel, down $0.03 1/4.
The CME Feeder Cattle Index for the seven days ended Wednesday was $155.59 per cwt down $0.16. This compares with Thursday’s May contract settlement of $160.32, up $1.93.