PACE for 2023

By Gary Schnitkey and Jim Baltz et.al
Department of Agricultural and Consumer Economics
University of Illinois

Carl Zulauf
Department of Agricultural, Environmental and Development Economics
Ohio State University

The Post Application Coverage Endorsement (PACE) begins its second year with an expanded pilot area. PACE provides payments when farmers cannot apply nitrogen to corn after planting because of weather-related causes. Recent declines in nitrogen fertilizer prices may give incentives to apply more nitrogen after planting in 2023, potentially leading to a higher benefit for PACE. We provide detail on PACE in this article.

The Basic Policy

PACE is available in the counties indicated in Figure 1. PACE’s availability includes all counties in Illinois and Iowa. In addition, PACE is available in most counties in Minnesota and Wisconsin and selected counties in North Dakota, South Dakota, Nebraska, Kansas, Indiana, Ohio, and Michigan. PACE is available on non-irrigated corn acres not classified as high-risk for insurance purposes.

PACE is available if farmers choose to insure their underlying acres with one of the eligible insurance plans: Revenue Protection (RP), RP with harvest price exclusion, and Yield Protection (YP). PACE is not available on Area plans of insurance. The farmer must decide to add the endorsement by the March 15 sales closing date, the same deadline for the underlying insurance plans.

The following two variables influence the premium and indemnity payments from PACE:

1. Post-Application Percent is the percentage of nitrogen to be applied post-planting. PACE elections range from 25% to 80% in 5% increments. For PACE, a farmer will report the total nitrogen amount expected to be applied, the pre-application percent, and the declared post-application percent by March 15. For example, suppose a farmer plans to use 180 pounds of nitrogen, 108 pounds were applied in the fall, and 72 pounds will be applied post-planting. The farmer would report that 180 pounds are expected to be applied, 60% will be pre-applied (108 / 180), and the declared post-application percent is 40% (72 pounds applied after planting / 180 pounds of N to be applied). PACE premiums will be based on declared post-application percent.
2. PACE Coverage Election ranges from 75% to 90% in 5% increments. Higher elections result in higher payments when nitrogen cannot be applied and vice versa. Higher elections also result in higher farmer-paid premiums and vice versa.

Premiums and Payouts

A Microsoft Excel spreadsheet called the PACE Tool provides premiums and payments for PACE given user entered data. Figure 2 shows the output from the tool. Inputs are given in the yellow box and include the following:

• State: States for which PACE is available are included as dropdown options.
• County: Counties for each state are given for which PACE is available.
• Unit: Alternatives are optional, basic, or enterprise. Those units match the underlying COMBO product.
• Underling Policy: Options are RP (Revenue Protection), RPhpe (RP with harvest price exclusions, and YP (Yield Protection).
• APH Yield: This entry is the guarantee yield of the underlying product.
• Projected price: The entry should reflect the projected price for 2023. This value will be known at the end of February.
• PACE Coverage Level Election: Elections can range from 75% to 90% in 5% increments.

The output gives farmer-paid premiums and PACE indemnities for different Post Application Percents. For the LaSalle County example, the farmer-paid premium is $7.30 per acre for a 70% post-application percent. For 70%, a $178 per acre indemnity payment will be received if nitrogen cannot be applied post-plant. That indemnity payment will be received on acres where nitrogen cannot be applied.

Commentary

More detail on PACE is available in a farmdoc daily article on January 18, 2022. Farmers who post-apply nitrogen may find this policy of use. As nitrogen prices have begun to decline, there may be more benefit to waiting to apply more nitrogen after planting. Those farmers who do so may wish to purchase PACE.