Crop insurance options for unseeded acres

Ontario’s Agricorp unseeded acreage coverage presents different considerations than the American prevent plant payments system

By Sean Mitchell and Alfons Weersink
Department of Food, Agricultural and Resource Economics
University of Guelph

After a long wait to make significant progress with this year’s planting, most Ontario producers have finally had a two-week window of dry weather to finish planting corn.

Still, significant pockets remain throughout the province where planting is significantly delayed. Even after Agricorp extended the final planting date for corn in areas A, B and C until June 17, some producers could not finish by this deadline. Other areas of the province received similar extensions.

The situation is arguably worse in parts of the American Midwest, where more than 25 per cent of farmland remains unplanted.

Both in Ontario and south of the border, delayed planting has resulted in speculation that producers should park their planters and look to alternatives such as the U.S. Department of Agriculture’s (USDA’s) prevent plant program, or Agricorp’s unseeded acreage benefit (USAB) in Ontario. Producers have rarely used these programs but farmers are interested in whether these preplant insurance programs could be right for them given the difficulty of the 2019 planting season. 

How do the programs work and how do they compare?

As planting dates kept getting pushed back due to the wet weather, American producers were faced with three choices for ground originally slotted for corn:

1) plant corn but face likely yield drops because of the delay

2) plant soybeans with lower prices and declining yield prospects

3) take an insurance payout

The USDA’s prevent program pays producers a portion of their projected income per acre to forego planting crops which will likely not mature properly. The rational behind these payments is that they are preferable to more expensive production insurance payments. The program is also intended to save farmers the labour and input costs of planting a crop that is doomed from the outset.

Agricorp’s USAB works in a similar way.

Both the American and Ontarian programs are intended to cover fixed costs and land maintenance, and they reflect the historical yield average farm yield (AFY) of individual producers.

After a certain date, the farmer must decide whether to take the insurance payout and the conditions of the program, or to take the chance on planting corn or another crop. Each program is also subject to some degree of subjective scrutiny where an agent ensures that reasonable crop management practices are followed.

While both programs are intended to provide support in difficult planting conditions, significant differences exist in the coverage levels and requirements as shown in the table below. 

The payouts for each program are illustrated for a farmer with corn selected as his or her dominant crop. The producer is enrolled in a plan with a floating price option with an 80 per cent coverage level and an average farm yield of 180 bushels per acre.

Comparison of USDA’s Prevent Plant program and Agricorp’s USAB for corn (C$/acre)

1. Currency conversion based on US$1 = C$1.30
2. Insurance premium rate for yield protection
3. Net revenue from soybean yield of 35 bu./acre @ $11.65/bu.
4. Based on $11.65/bu.

Three main differences exist between the two programs. The first difference is the cash price used to determine the value of the crop not planted.

The second and most significant difference is the yield coefficient. The USDA’s prevent plant payment is 55 per cent of the initial revenue guarantee of the insurance. In the example above, this equates to $748.80/acre (0.8 x 180 bu/acre x $5.20/bu), resulting in a payout of $391.80/acre (0.55 x $748.80 – $20).

The level of coverage chosen for the final crop does not influence the Agricorp’s USAB payment, which is 33 per cent of the expected value of the crop: $278.18/acre (0.33 x 180 bu./acre x $4.70 bu. x 0.99 - 1). The USAB also has minor deductible and premium costs.

The third difference between the USAB and prevent plant programs is the restrictions on what can be done with the land after the final plant date.

The yield coefficient for prevent plant depends on what is done with the land after the final plant date. The coefficient can be reduced to 35 per cent in many circumstances or eliminated entirely if the farmer plants within 25 days of the planting deadline or allows livestock to graze prior to Nov. 1.

In contrast, Ontario corn growers have no restrictions on what they can do with the land. They can still grow crops for market but those crops cannot be insured. If an Ontario producer decides to take advantage of this opportunity and plants soybeans after the planting deadline, the breakeven yield is 26.5 bu./acre, assuming costs of $308/acre.

At first glance, the prevent plant program for American farmers is more lucrative than Agricorp’s USAB program. However, this payment declines depending on what the American farmer does with the land. An Ontario producer, in contrast, receives the same payment regardless. So, the net return on the land could be higher for the Ontario grower provided he or she can obtain sufficient yields from the crop eventually planted late on the wet land qualifying for the USAB payment.