FARE Blog

Food, Agriculture, and Resource Economics

What Farmers Need to Know about Crop Insurance and Prevented Planting

by Adam N. Rabinowitz and Yangxuan Liu

Southern Georgia has seen a lot of rain during the month of May.  The table below shows the precipitation and number of rainy days in 2018 compared to the average from 2015-2017 for four selected areas in southern GA.  Precipitation in 2018 has been, on average, more than twice that of the previous three years.  The number of rainy days has also been more than twice the previous three-year average.

Southern Georgia Rainfall Data for May 1 through May 29  
2018 2015-2017 Average
  Precip. (in) # Rainy days   Precip. (in) # Rainy days
Tifton 6.91 14 2.02 6.33
Camilla 5.16 13 3.26 5.33
Midville 6.74 14 2.98 7.00
Plains 7.11 14   2.94 6.33
Source: http://weather.uga.edu

Subsequently, planting issues have occurred for farmers who typically plant cotton and peanuts during the month of May.  According to the USDA National Agricultural Statistics Service, only 65% of cotton and 73% of peanuts have been planted through May 27th.  This compares to an average of 72% for cotton and 81% for peanuts for the similar period during 2015-2017.  With saturated fields and more rain in the forecast, farmers need to start thinking about whether all their intended plantings will occur following sound agricultural practices.  It is also important to think about how this relates to their crop insurance policy, planting deadlines, and prevented planting eligibility for 2018.

Over 90% of Georgia peanut and cotton farmers typically select some form of crop insurance coverage.  Included in this coverage is a prevented planting provision that provides payments when extreme weather conditions prevent expected plantings by the final planting date or during the late planting period.  The USDA Risk Management Agency (RMA) announces the final and late planting dates, which vary by crop, coverage type, and county.  The table below identifies the final planting date and the end of the late planting period for peanuts and cotton in GA.  Coverage during the late planting period is reduced by 1% for each day after the final planting date, up to the end of the late planting period.

Peanut Revenue & Yield Protection
Final Planting Date End of Late Planting Period Date Counties
5/31/2018 6/10/2018 Jefferson, Johnson, Laurens, Montgomery, Richmond, Treutlen, Washington, Wilkinson
6/5/2018 6/15/2018 All other counties
Source: USDA Risk Management Agency
Cotton Revenue & Yield Protection
Final Planting Date End of Late Planting Period Date Counties
5/25/2018 6/4/2018 Bartow, Chattooga, Elbert, Floyd, Franklin, Gordon, Hart, Henry, McDuffie, Monroe, Morgan, Oconee, Polk, Spalding, Walton, Warren
6/5/2018 6/15/2018 All other counties
* There is a special provision starting in 2018, which will allow for coverage of Upland Cotton planted five days after the end of the late planting period.  If Upland Cotton is planted during that five-day period, it is not eligible for prevented planting.
Source: USDA Risk Management Agency

If planting by these deadlines is not possible, it is important that farmers maintain proper records that document the cause.  Keep in mind that planting decisions must be based on sound agronomic and crop management practices.  If it appears that it will be difficult to finish planting by the final planting date or during the late planting period, farmers should contact their crop insurance agent and discuss their options.

A full publication is available (click here to download) that includes the above information, frequently asked questions, answers, and links to additional resources.

 

Publication: Surviving the Farm Economy Downturn

by Levi Russell

A new publication entitled “Surviving the Farm Economy Downturn” is now available online free of charge. The publication provides a general farm economy outlook as well as discussions of topics such as risk reduction, cost control, alternative crops, livestock sales during drought, crop insurance, ARC and PLC payment forecasts, stress and suicide, and other issues. Please follow the link below to check out essays on these and other topics:

https://afpc.tamu.edu/extension/resources/downturn-book/

Understanding Your Generic Base Conversion Options With the Seed Cotton Program

by Don Shurley and Adam N. Rabinowitz

We have developed a third publication in a series of fact sheets on the new seed cotton program. Included in this document is a little history of what happened with the 2014 farm bill that led to the development of the seed cotton program.  We provide an example of the decision process and identify things to think about when making the decision.

The PDF can be downloaded here.

MYA Prices and Calculating Payments with the Seed Cotton PLC

by Don Shurley and Adam N. Rabinowitz

This post presents a second fact sheet in a series of publications that briefly explain the basic workings of the new seed cotton program.

Effective with the 2018 crop, “seed cotton” is now a covered commodity under Title I of the 2014 farm bill and eligible for PLC (Price Loss Coverage) payments. For purposes of the legislation, “seed cotton” is unginned upland cotton—a combination of both cotton (lint) and cottonseed.

The linked document discusses:

  • Reference price and payments,
  • Marketing year average prices and how to calculate them,
  • What would have been the past 10 years had the seed cotton program been in place,
  • Payment yields, and
  • A payment calculator

Click on this link to access the factsheet.

 

The Bipartisan Budget Act of 2018: What Farmers and Landowners Need to Know about Cotton and Generic Base

by Don Shurley and Adam N. Rabinowitz

On the morning of February 9, 2018, the U.S. Congress passed budget legislation that included the designation of seed cotton as a covered commodity under the 2014 farm bill. The President has signed this legislation and it has become law. The document linked below highlights the critical components about the new cotton program and treatment of Generic Base.

The Bipartisan Budget Act of 2018

More information, including a decision aid, will be available soon at http://agecon.uga.edu/extension.

How big is this peanut crop?

by Adam N. Rabinowitz

The 2017 peanut harvest is well underway with over 70 percent of the Georgia crop dug and over 50 percent harvested.  While Hurricane Irma negatively impacted the cotton crop, there was no widespread negative impact on peanuts.  Both irrigated and dryland peanuts are looking good.

Peanut yields in Georgia and the rest of the peanut producing states will be up from last year with the big question being by how much and whether new records will be set.  USDA forecasts for the U.S. are for a yield of 4,257 pounds per acre with the GA yield at 4,700 pounds per acre, both of which would set new records.    With 1.9 million acres planted in the U.S. and 840 thousand acres planted in GA, this crop also has the potential to set a new record level of production.

A few questions have surfaced that are worth discussing as we wait for the harvest to be completed in the coming weeks.

  • Is there sufficient warehouse capacity to store the expected crop?
    As of mid-September there were 3.8 million tons of approved warehouse capacity in the U.S. with 1.9 million tons in GA.  At first look, this has the potential to create a shortage of warehouse space of about 118 thousand tons in the U.S. and about 12 thousand tons in GA.  However, expectations are that a worst case scenario would be a logistical issue and not a question of where to store these peanuts.  Coming into this harvest, warehouses have been basically empty and shellers are prepared to start moving the current crop through the system.  Combine that with a longer than typical planting season and the industry should have little problem in finding space for these peanuts.
  • What is the size of this crop going to do to market prices?
    This becomes a question of supply and demand.  Basic economics tells us that as the supply increases prices will be driven down.  There is little anyone can do to prevent the supply situation at this point, so one must look towards demand.  The industry needs to continue to look for opportunities to expand demand in order to maintain or increase prices.  We have seen domestic use of peanuts for food increase in recent years but there are few opportunities to impact consumer demand in a short period of time.  The greatest opportunity for finding a market for this crop is through increased exports.  Through August, total U.S. exports have been down compared to last year, and this is likely due to prices that increased late last year.  While it is likely that exports will pick up, there is little indication that it will be without a drop in price.  Right now the market is waiting to see how large this crop will be and that will determine how low the price will go to move this crop.  Even with exports forecast to increase from last year, the ending stock created by this crop is expected to reach the heights of 2012.  The industry needs to find a home for these peanuts as prices will be impacted until this surplus can be moved.

So the big question of course is whether the crop will meet these yield expectations.  We really won’t know until the harvest is complete but we can look at some of the historical USDA projections to get an idea of how accurate they have been in forecasting yields.

As can be seen in the figure above, the blue line represents the actual yield in GA and the orange line represents the October forecast yield released by the USDA.  This graph starts in 2006 which was when Georgia-06g was released.  This variety currently represents about 80 percent of the peanuts planted in GA.  We can see that every year, except the last two years, the USDA October forecast was less than the actual final yields.  Generally this would project a very favorable expectation on the USDA forecast model as typically underestimating yields.  There is further evidence of underestimating in 2012 when there was a big spike in yield such as is expected this year.  The two most recent years when the USDA overestimated yields were during a period of a downward trend from the peak.  It will be interesting to see what the final yield number is for 2017 and how that compares to the current forecast of 4,700 pounds per acre.  This is certainly a big spike in yield from our actual 2016 yield of 3,900 pounds per acre, but with no major crop and weather issues this year it might just be achievable.

Southern Outlook Conference Presentations Available

by Levi Russell

Last week in Atlanta Extension economists, lenders, and ag media met in Atlanta to discuss the market and policy outlook for agricultural commodities in the Southeast in the coming year. UGA economists presented the outlook for peanuts, timber, turfgrass, the green industry, cotton, poultry, and hogs. All presentations are available here. Feel free to contact us with questions about the presentations.

Planted Acres vs Base Acres

by Adam Rabinowitz

There have been some comments from policymakers regarding the upcoming farm bill and the debate between planted acres and base acres.  Here is an explanation as to why base acres have been used and the potential impact of using planted acres.

The 2014 Farm Bill contains provisions for Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) commodity programs that are tied to a “base acreage” for which to compute payments. Base acres for a particular Farm Service Agency (FSA) farm depend on the past decisions by the farm to reflect either 1991-1995, 1998-2001, or 2009-2012 planted acres. Regardless of the specific base acreage determination, the common point among the commodity programs and farms is that base acreage is determined on historical planted acreage and not current year planted acreage. There are two main concerns over computing safety net program payments on current planted acres.

  1. Payments made on current planted acres means that newly planted acres are eligible for payments. This has the potential to distort market prices because planting decisions will be directly impacted by the eligibility for program payments. As planted acres increase, the market price will decrease, resulting in increased program payments, which may continue to perpetuate into a further increase in acreage, payments, etc.
  2. World Trade Organization (WTO) agreements contain limits on trade-distorting domestic support. When government safety net payments are tied to planted acres they would likely be reported as product specific crop commodity program payments. Product specific payments are viewed as potentially trade-distorting and thus subject to WTO limits.

Historical base acres have thus been used to mitigate the potential negative market distortion from government programs and potential violation of trade agreements. By determining safety net program payments on historical acreage, there is little (if any) incentive to make planting decisions based on the ability to receive government payments. With current safety net payments being issued in October of the following year after harvest, there is an even greater disconnect between planting decisions and government payments. Furthermore, ensuring that agricultural commodities maintain compliance with trade agreements is critical for continued expansion of demand and access to foreign markets for U.S. farmers.