Category: Crop Insurance

Delayed and Prevented Planting Resources for 2019 from ISU Extension and Outreach

Ann Johanns

On May 24, 2019, ISU Extension and Outreach field agronomists, Rebecca Vittetoe and Virgil Schmitt, along with farm management specialist, Ryan Drollette recorded a webinar on delayed and prevented planting. The following are links to resources for 2019 delayed and prevented planting decisions.

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Prevented Planting FAQ for 2019

Ann Johanns

Contributed by Steve Johnson, Extension Farm Management Field Specialist, sdjohns@iastate.edu

Steve JohnsonQuestion: When is prevented planting available?

Answer: Prevented planting must be due to an insured cause of loss that is general in the surrounding area and that prevents other producers from planting acreage with similar characteristics. Failure to plant when other producers in the area were planting will result in denial of the prevented planting claim.

There’s also a 20/20 Rule – a minimum of 20 acres or 20 percent of the unit must be affected. Total acres   of planted and prevented planted cannot exceed the total cropland acres. Prevented planting claims must be filed with your crop insurance agent by June 28   for corn and July 13 for soybeans. Prevented planting acres must be reported on the FSA Form 578 acreage report. That deadline to file that form in Iowa is July 15, 2019.

Question: When is prevented planting not available?

Answer: On ground that is insured through a New Breaking Written Agreement; Conservation Program Reserve land that is in its first year out of CRP; on ground where a pasture or forage crop is in place during the time of planting; when other producers in the area   are able to plant; and on county-based crop insurance area policies such as AYP and ARPI.

Question: How much do I get paid for prevented planting

Flooded field

Answer: When spring conditions prevent a crop from being planted, payment equals 55 percent of the initial revenue guarantee on corn and 60 percent on soybeans.

  • An example payment for corn would look like the following: 190 bushels APH x 80% x $4.00/ bu = $608 initial revenue guarantee x 55% = $334.40/acre PP payment.
  • For soybeans, an example is: 55 bushels APH x 80% x $9.54/bu = $419.76 initial revenue guarantee x 60% = $251.86/acre PP payment.
  • Note that payments for prevented planting use the projected price (new crop futures price average in February).

Question: How are eligible acres for prevented planting determined?

Answer: The insurance company considers each of the insured’s crops in each county. They look at the maximum number of acres reported for insurance and certified in any of the four most recent crop years. The acres must have been planted in one of the last three crop years.

Question: What happens if you are prevented from planting and there are not enough eligible acres for the crop being claimed?

Answer: When the insured runs out of acreage eligibility for one crop, the remaining prevented planting acres will be “rolled” to another crop, such as corn to soybeans.

Question: What happens to my APH – actual production history – if I take prevented planting?

Answer: The insured farmer who receives prevented planting on a crop does not have to report the actual yield for the year. Generally, prevented planting will not impact the APH yield in future years, unless a second crop is planted on prevented planting acres.

Question: What happens if the first crop is prevented planting, but the second crop is planted?

Answer: If the second crop is planted, it MUST be insured if there was insurance for that crop elected on or before March 15, 2019. The second crop must have been planted AFTER June 25 for corn and July 10 for soybeans. If the insured farmer plants a second crop they will still receive 35 percent of the indemnity for the prevented planting crop and pay only 35 percent of the premium.

Planting a second crop on prevented planting ground affects the following year’s APH:

  • First crop – you receive 60 percent of the approved yield (190 bu/A APH X 60% = 114 bu/A).
  • Second crop – actual yields are used for APH.

Question: What will crop insurance adjusters need to do for prevented planting claims?

Answer: Visually inspect all prevented planting acres to determine:

  • Acres are within five percent of what was on the acreage report.
  • Whether the acres are left idle, or whether a cover crop or second crop has been planted.
  • What the cause of loss was, and if it is general to the area.
  • Determine eligible acres.
  • Roll acres to other crops if insured is short of eligible acres for reported prevented planting crop.

Question: What are the deadlines for filing prevented planting in Iowa?

Answer: These dates vary by state, but tend to be three days after the last day of the late planting period.

  • In Iowa, the deadline for filing prevented planting with your crop insurance agent is June 28 for corn and July 13 for soybeans.
  • Acreage reporting deadline is July 15.
  • Prevented planting acres listed on your acreage report (FSA Form 578) should match the information provided to your crop insurance agent in order to qualify for a full indemnity payment.
  • Work with your crop insurance agent well in advance of these dates regarding a prevented planting claim and whether a cover crop or a second crop will be planted.

Question: If I have to leave some of my acres unplanted (prevented planting), will they still count toward my eligibility for enterprise units?

Answer: Only planted acres are considered when determining eligibility for enterprise units. (To qualify for enterprise units on crop insurance policy, at least the smaller of 20 acres or 20 percent of planted acres must be in two or more different township sections.) For example, a farm with 200 acres each in two sections would normally qualify for enterprise units. However, if fewer than 20 acres are planted in one of the sections, the farm would no longer qualify. Possible increases in crop insurance premiums due to a change in unit designation should be considered when deciding whether or not to file a prevented planting claim on some acres.

Question: If I take prevented planting on some of my fields and plant a cover crop, when can I harvest or graze the cover crop?

Answer: If you plant any kind of cover crop and expect to receive a crop insurance indemnity payment for prevented planting, you cannot harvest or graze those acres until after November 1 (September 1 for 2019 crop only).

ISU resources for more information

More details can be found in the ISU Extension and Outreach Ag Decision Maker publication, Delayed and Prevented Planting Provisions. An electronic decision spreadsheet is also available to help analyze alternative actions. Producers should communicate with their crop insurance agent before making decisions about replanting or abandoning acres.

More resources on Recovering from Disasters are also available from ISU Extension and Outreach.

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Supplemental Coverage Option for 2019 Crops

Ann Johanns

Contributed by Steve Johnson, Farm Management Specialist, Iowa State University Extension and Outreach, sdjohns@iastate.edu

Headshot of Steve JohnsonSupplemental Coverage Option (SCO) crop insurance was introduced in the 2014 Farm Bill but was limited to acres enrolled in the Price Loss Coverage (PLC) commodity program. SCO was not available when Agricultural Risk Coverage (ARC) was chosen by crop by FSA farm number. ARC was the choice for nearly 98 percent of the Iowa’s base corn acres and over 99 percent of the base soybean acres from 2014 through 2018.

As a result, SCO was not a crop insurance choice for very many farms through 2018. Similar to the 2014 Farm Bill the 2018 Farm Bill again gives farmers a choice by crop by FSA farm number to elect and enroll in either the ARC-County or the PLC program.

However, with the 2018 Farm Bill being implemented in 2019, the expectation of some experts is that many farmers will eventually enroll in the PLC program for the 2019 and 2020 crop years, especially on their corn base acres. That’s because of the potential for the PLC program to trigger payments should the final national average cash price fall below the $3.70 per bushel reference price. Enrollment in PLC will lead to more insured crop acres being eligible for the purchase of SCO. For 2019, SCO premiums appear very attractive as compared to Revenue Protection (RP) at higher coverage levels.

Coverage based on county revenue

The SCO band of coverage will be based on the county revenue given that the underlying crop insurance product is RP. SCO provides a protection in a band at an 86 percent maximum level down to the coverage level selected for RP. An example would be a farmer who selects a 75 percent coverage level for RP in addition to the SCO product. Thus, SCO could provide county-based revenue coverage from the 86 percent to the 75 percent level.

To trigger an indemnity claim, a county-based revenue must fall below 86 percent of expected revenue before SCO makes a payment. As a result, the RP-SCO combination provides mixed coverage: Farm-level coverage is provided from the RP product downward while county-level coverage provides between 86 percent and the coverage level of the RP product.

The primary disadvantage of the RP-SCO combination is that the county-level coverage may not match losses on a farm. Sometimes a farm may have a loss while SCO will not trigger a payment. It’s also possible for the farm to not have a loss while the county-based SCO product triggers a payment.

Premiums under RP-SCO combinations

The primary advantage of using SCO is a lower farmer-paid premium. The costs of an RP-SCO combination product will usually be lower than the 85 percent RP product alone for two reasons.

First, the county yields are typically less variable than the farm yields, resulting in fewer payments for a county-based product than for a farm-level product at the same coverage level. Lower payments then result in a lower premium. Second, SCO has a subsidy rate of 65 percent which is a higher than the RP at the 85 percent coverage levels using enterprise units. This 65 percent subsidy rate is higher than all subsidy levels for basic and optional units when the coverage level is above 50 percent. These government paid premiums are reflected in Table 1 below.

table showing premium assistance levels on farm-level products

Who should consider SCO?

Farmers who typically purchase RP at high coverage levels could find SCO useful, particularly if a lower coverage level is selected that might result in a lower farmer-paid premium. However, the farmer should have the intention of eventually electing and enrolling those crops on those farms in the PLC program. Farmers interested in SCO coverage for 2019 should discuss premiums and choices with their crop insurance agent before the March 15 sales closing deadline on spring planted crops.

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Crop Revenue Insurance Proceeds – Price Loss versus Yield Loss

Ann Johanns

Contributed by Charles Brown, Farm Management Specialist, Iowa State University Extension and Outreach, crbrown@iastate.edu, 641-673-5841

With the drought and floods in 2018, there has been some discussion on the income tax treatment of crop insurance proceeds. Some people may have sold the 2017 crop in 2018 and are concerned about the doubling of income if they also received their crop insurance payments in 2018 as well. It is possible to defer the crop insurance to the year following harvest, but certain criteria have to be met.

A cash method farmer may elect to postpone reporting insurance proceeds on damaged crops from the year of damage to the following year if 50% or more of the crop is normally sold the year following production. This is determined on a crop-by-crop basis. This is done by making the election IRC Sec. 451(d); Reg. 1.451-6 on the tax return for the year of loss. A statement must be attached to the tax return and include the following:

  1. This election is made under IRC Sec. 451 (d) and Reg. 1.451-6.
  2. Identification of the specific crop or crops destroyed or damaged.
  3. A statement that under normal conditions the crop would have been sold the following year.
  4. Identification of the cause of destruction or damage and the dates it occurred.
  5. The amount of payment received and the date each payment was received for each crop.
  6. The name of the insurance carrier or payer from whom the amounts were received.

If you defer insurance for one crop you must do it for all crops that insurance money was received for. This would include any disaster money received from USDA. Crop revenue insurance guarantees a certain level of income based on yield and price. Sec. 451(d) allows the deferral of crop insurance proceeds “received as a result of destruction or damage to crops” or the inability to plant crops because of a natural disaster. IRS has previously ruled that insurance programs that provide payments without regard to actual losses fall outside the statutory definition of destruction of damage to crops. Therefore crop revenue insurance proceeds would not be eligible for deferral. However, if you can prove a portion of the insurance proceeds was the direct result of crop damage due to hail, flooding, drought or some other destruction, or some portion of the proceeds was the result of damage, then that portion of the insurance proceeds should be allowed for the deferral election. The portion of the proceeds that was related to price would have to be reported as income in the year received. This year, 2018, it is possible that the harvest price could be lower than the spring price and a portion of the insurance proceeds will be because of price loss. Please contact your tax professional for consultation on specific questions for your farm.

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Crop Insurance Coverage Frequently Asked Questions in Times of Drought or Floods

Ann Johanns

Contributed by Charles Brown, Farm Management Specialist, Iowa State University Extension and Outreach, crbrown@iastate.edu, 641-673-5841

In 2018, again some Iowa farmers are suffering the extremes of drought in the Southeast and floods in the North and Northeast. Both losses due to drought and flooding are an insurable loss under multi-peril crop insurance. Another dynamic added to the mix this year is yield loss due to chemical drift or misapplication, which is not a covered loss under multi-peril crop insurance. Especially in Southeast Iowa, due to drought conditions, again there will be claims for losses on corn and soybeans.

Important Point: Do not destroy a crop, comingle grain from previous years or different owners or harvest for silage before contacting your insurance agent. Bins must be measured before comingling grain. When in doubt call your agent.

Question: How many of Iowa’s corn and soybean acres are covered by crop insurance?

Iowa farmers planted 23.2 million acres of corn and soybeans in 2018. Approximately 90% of those acres have been insured using Revenue Protection (RP) multi-peril crop insurance. These insurance policies can guarantee various levels of a percentage of the farm’s average yield times the higher of the projected price (average futures price in the month of February) or the harvest price (average futures price during the month of October), using the November 2018 futures contract for soybeans and the December 2018 futures contract for corn. Most farm operators carry a guarantee of their APH from 65% to 85% level of coverage. The projected prices (futures average prices in February 2018) were $3.96/bu for corn and $10.16/bu for soybeans, respectively.

Question: What should an insured farmer do once a crop loss is recognized?

  1. Notify the insurance agent within 72 hours of the discovery of damage, but not later than 15 days after the end of the insurance period. A notice of loss can be made by phone, in writing or in person. Although drought loss is not immediate, farmers should contact their agent as soon as they feel a loss is present.
  2. Continue to care for the crop using “good farming practices” and protect it from further damage, if possible.
  3. Get permission from the insurance company, also referred to as your Approved Insurance Provider (AIP), before destroying or putting any crop to an alternative use.

Question: Who will appraise the crops and assess the loss?

The crop insurance company will assign a crop insurance adjuster to appraise the crop and assess the loss. The insured farmer must maintain the crop until the appraisal is complete. If the company cannot make an accurate appraisal, or the farmer disagrees with the appraisal, the company can have the farmer leave representative sample areas.

These representative sample areas of the crop are to be maintained – including normal spraying if economically justified – until the company conducts a final inspection. Failure to maintain the representative sample areas could result in a determination that the cause of loss is not covered. Therefore no claims payment to the producer.

Once appraised the crop can be released by the company to be:

  1. Destroyed – through tillage, shredding or chemical means; or
  2. Used as silage or feed.

Question: Once released, may I harvest my corn as silage for feed?

Check with your crop insurance company. In a county where corn can be insured as grain only, the corn will be released, or harvested as silage and/or sold as feed. Any grain will be counted as production for your claim. In a county where corn can be insured as silage, the harvested silage will be counted as production.

Question: What is the difference among insurance units?

Many farmers have chosen to insure their crops using enterprise units in order to pay less expensive insurance premiums. Under enterprise units, losses are calculated by crop by county. Therefore all the corn planted by a farmer is a given county would be added together to determine a loss. If a farmer has chosen optional units, then losses are calculated by crop by field unit. Premiums are typically higher if choosing optional units, but a good yield on one field does not cancel out the loss on another field.

Question: When will farmers be receiving indemnity payments for their crop insurance losses?

Adjusters will be busy with the increase in losses in Southeast Iowa. As soon as you are finished harvesting notify your insurance agent and an adjuster will be assigned to you. Insurance companies cannot defer payments to the next tax year, but claims adjusted late in the year may not be paid out until the following year.

Question: What is the maximum price that the harvest time indemnity price (average October futures price) can reach?

The maximum harvest indemnity price values for 2018 are twice of the projected price; or $7.92/bu for corn and $20.32/bu for soybeans, respectively.

Question: Can indemnity payments for drought be deferred for income tax purposes until 2019?

A taxpayer using the cash method of accounting claims the income in the year they receive the payment. The insurance company will send the insured a 1099 showing the amount and tax year to report the income.

A farmer, if they are using the cash method of accounting for reporting taxes, can elect to defer crop insurance payments if the loss is due to yield loss and they normally sell more than 50% of their crop the year following harvest. They cannot defer any loss that is due to price loss. Farmers that are using the accrual method of accounting for reporting taxes cannot defer crop insurance payments.

Question: Will I be asked to provide proof of my bushels this year for crop insurance verification?

All multiple peril crop insurance users are subject to production verification on a random basis. If a claim that exceeds $200,000 is filed for an individual crop and policy, verification of production is automatically required by regulation. This also requires a 3 year audit.

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