February’s WASDE Report Had Few Crop Demand Adjustments (2/11/20)

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Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest WASDE report.

February’s WASDE report had the potential for some fireworks, as it was the first major update since the signing of the Phase One trade deal with China and the outbreak of the coronavirus. But those fireworks did not materialize as USDA made relatively few adjustments, with those adjustments firmly supported by current trade and usage data. For corn, the two moves of note essentially offset each other. Corn exports were lowered 50 million bushels, as export sales continue to struggle. But corn usage for ethanol was raised 50 million bushels, as weekly ethanol production and monthly corn processing data shows increased usage.  With the offsetting moves, the 2019/20 corn ending stocks estimate remains at 1.89 billion bushels and the 2019/20 season-average price estimate holds at $3.85 per bushel. For soybeans, the only shift came from exports. USDA raised soybean exports by 50 million bushels, based on larger year-over-year sales to China. While that lowered the 2019/20 soybean ending stocks estimate to 425 million bushels, the 2019/20 season-average price estimate was lowered to $8.75 per bushel, reflecting the softer prices on the soybean market throughout January.

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ARC/PLC Decision Deadlines Loom

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

Iowa producers on row crop farms have until March 15 to make a 2-year election and then enroll by commodity crop and USDA Farm Service Agency (FSA) farm number. There really is no reason to delay, as no ARC-CO/PLC payments are projected for the 2019 crops. Besides, many FSA offices could be swamped as the deadline approaches.

Undecided producers should start by understanding the importance of the effective reference prices of $3.70 per bushel for corn and $8.40 per bushel for soybeans. In order to trigger a PLC payment, the final national cash for the entire marketing year must be below these levels. The national cash price projections for the 2019 crop as of January 10, 2020 are $3.85 per bushel for corn and $9.00 per bushel for soybeans, respectively. Thus, no PLC payments are expected for corn and/or soybean base acres that are elected and enrolled in the PLC program.

If there are 2019 ARC-CO or PLC payments, it will likely be in a county with exceptionally low 2019 final yields. These final county yield numbers from the USDA Risk Management Agency (RMA) will not be known until later this year. The 2019 Iowa yields from the USDA National Agricultural Statistics Service (NASS) January report were estimated to be 198 bushels per acre corn and 55 bushels per acre for soybeans. Such levels indicate that most final county yields are likely too high to trigger a 2019 ARC-CO payment.

If there is a 2019 payment, it will likely be under the ARC-Individual (ARC-IC) program. The producer probably has a farm with poor 2019 yields and possibly prevented planting acres. That producer should consider electing and enrolling all crops by FSA farm number in the ARC-Individual (ARC-IC) program if a likely payment will be generated. It will require further examination and production evidence for each commodity crop produced on that farm since the 2013 crop year.

It’s actually for 2020, that an ARC/PLC payment seems more likely. Corn and soybean planted acres are expected to increase by roughly 11 to 12 million total planted acres for both crops as a result of the large prevented planting acres in 2019. Two sources of 2020 price projections released last fall are the USDA Outlook and the Food Agricultural Policy Research Institute (FAPRI) at the University of Missouri. Both sources project an increase in 2020 US corn planted acres by 2.5 to 4.5 million acres and use 30-year trendline yields assuming normal production. Those 2020 crop cash price projections for corn are $3.40 and $3.53 per bushel, respectively. Thus, the likelihood of a 2020 PLC payment for corn that would be received in October 2021, as the final cash price would fall below the reference price of $3.70 per bushel.

Using those same two sources for 2020 soybean cash price projections, US soybean planted acres would increase between 7.5 and 8.5 million acres as compared to 2019.  Again, they use 30-year trendline yields and normal production. Those 2020 crop cash price projections for soybeans are $8.54 and $8.85 per bushel, respectively. Thus, no 2020 PLC payment for soybean base acres is expected as the final cash price is not below the effective reference price of $8.40 per bushel. However, the lower national cash price improves the chances of ARC-CO payments for soybean base acres depending on the final county yields.

Producers will also have a one-time chance to update their PLC Farm Yields starting with the 2020 crop. Even if a producer elects the ARC-CO or ARC-IC program option, the PLC yield can be updated and becomes the public record of the farm’s yield. Supporting evidence for the PLC Yield Update will likely come from a producer’s crop insurance records if a program crop was produced in the 2013 thru 2017 crop years. In some cases, the yields for a crop insurance unit might not match with the FSA farm number and will need to be averaged. Note the farmland owner on cash rent farms will need to approve this PLC Yield Update and sign the form CCC-867 unless a power of attorney form is on file.

Use the ISU Ag Decision Maker ARC/PLC Payment Estimator and PLC Yield Update Tools to provide your analysis. More Information on the 2018 Farm Bill, including web casts on various pieces of the program, can be found on the Ag Decision Maker Farm Bill page.

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

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.

Delayed and Prevented Planting Webinar and Resources

Agronomic ResourcesFlooded, unplanted field

Cover Crops

Farm Management, Crop Insurance

More Information

Prevented Planting FAQ for 2019

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, RMA announcement).

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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Crop Revenue Insurance Proceeds – Price Loss versus Yield Loss

Contributed by Charles BrownFarm 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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