What is in this article?:
Returns from taking prevented planting payments versus planting soybeans are examined for two cases. The first is when the farmer is eligible for a corn prevented planting payment. The second is when a soybean prevented planting payment is available.
The farm has purchased a COMBO crop insurance product (i.e., Yield Protection, Revenue Protection, and Revenue Protection with Harvest Price Exclusion) for both corn and soybeans at 80% coverage levels. The Trend Adjusted Actual Production History (TA-APH) yields are 170 bu./acre for corn and 45 bu./acre for soybeans. The standard prevented planting factor of 0.60 has been selected at crop insurance sign up.
Given the above crop insurance information, prevented planting payments for both corn and soybeans can be calculated. For corn, the prevented planting payment is $461/acre (170 bu. TA-APH yield x $5.65 projected price x 80% coverage level x 0.60 prevented payment factor). The prevented planting payment for soybeans is $278/acre (see Table 1).
The prevented planting payment scenarios here do not consider costs associated with prevented planting. Most farmers will undertake weed control. Weed control costs used here are $15/acre. In addition, crop insurance will have to be paid on acres in which prevented planting is taken. Crop insurance premiums are assumed to be $25/acre for corn and $20/acre for soybeans. Given these costs, the net prevented planting payment is $421/acre for corn and $243/acre for soybeans. Table 1 shows the calculation of net prevented planting payments.
The alternative to taking prevented planting payments is planting soybeans. Only costs that can be avoided by not planting soybeans are included in the analysis. Herein, direct costs of $160/acre are used. Direct costs are included for fertilizer ($50/acre), pesticides ($30/acre), seed ($55/acre), storage ($5/acre) and crop insurance ($20/acre). Machinery costs are included for field cultivating ($10/acre), planting ($12/acre), combining ($30/acre) and trucking ($3). This gives a total of $55/acre in machinery costs. Soybean costs then total $215/acre ($160 direct costs + $55 machinery costs).