Crop Insurance and Replant Decisions

Recent adverse weather conditions may force some growers who have already planted to replant.

If you believe replanting may in your best interest, check the replant provision in your crop insurance policy and immediately contact your insurance agent to get the paperwork started. [Catastrophic (CAT) and Area (Revenue) protection policy do not have replant provisions.] 

The following guidelines, which come from the USDA Risk Management Agency's Loss Adjustment Standards Handbook, will give you an idea of what to expect from crop insurance for replanting.   To qualify for a replanting payment:

1.     The insured crop must be hit with an insured peril (excess moisture, frost, hail, etc.).

2.     Your approved insurance provider must determine that it is practical to replant. (This is why it's best to contact your insurance agent immediately.)

3.     Acres being replanted must have been initially planted on or after the earliest planting date.  

4.     Appraised expected yield must be below 90% of the guarantee yield on acreage intended for replant.

5.     Acreage replanted must be at least the lesser of 20 acres or 20% of the insured planted acreage for the unit.  

6.     Approved insurance provider must give consent to replant. 

7.     The replanting payment will be equal to the projected price multiplied by a maximum bushel factor.  For 

2014 corn and soybean projected prices are $4.62 and $11.36, respectively. Maximum bushel factors are eight bushels per acre for corn and three bushels per acre for soybeans. 

For example, your insured corn crop was hit with excessive moisture. You planted corn on May 1, which is past the earliest planting date ofApril 10.  Appraised expected yield is now 70 bushels per acre (bpa). Actual production history (APH) is 140 bpa. You insured using a Revenue Protection policy at a 75% coverage level using the projected price of $4.62 per acre.  Your yield guarantee would be 105 bpa (140 APH yield x 75% guarantee).  Applying Rule 4 from above, 90% of your yield guarantee is 94.5 bpa (105 x 0.9).  Your expected yield of 70 bpa is less than 94.5 bpa (90% of guaranteed yield).  Consequently, you would receive a replant payment of $36.96/acre (8 bpa x $4.62, the projected price). 

From the example we can see that qualifying for a replanting payment hinges on the producer's yield guarantee.  Selection of a lower coverage level implies a lower yield guarantee and a smaller chance of qualifying for a replant payment.  However, when extreme events occur it is likely everyone will qualify for a replant payment.  If you are unsure whether you may qualify for a replant payment, your first step is to contact your crop insurance agent.

Cory Walters
UNL Extension Crop Economist

Cumulative Precipitation Forecasts 5 Day Total

Farming, Taxes, and Planning for the Future (Part I)

In parts of the Midwest we had snow in May and excessive rain and flooding in June, not to mention a drought over the summer months. As a result, many farmers were unable to plant their crop or will have a short crop to harvest. Thankfully, due to federal crop insurance, numerous producers had the ability to make a prevented planting crop insurance claim. As the prevented planting claims have now been worked and the checks are either in the bank or on the way, now the question on producers’ minds turns to the tax consequences associated with the prevented plant insurance indemnity and possible harvest losses.

Like other crop insurance indemnities, prevented plant insurance proceeds are subject to deferral under certain conditions. Also, deferring insurance proceeds is an all or nothing election; both prevented plant and other crop insurance indemnities are tied together for the purpose of the election. The conditions required for deferral are as follows:

1. The producer must use cash method of accounting;

2. The producer receives insurance proceeds in the year the crop is damaged; and

3. The producers can show that it is their normal business practice to market the majority of the crop in the subsequent year.

Many farmers have chosen to defer income to the subsequent year. Using current year expenses to offset prior year income has worked well as both commodity prices and expenses have fluctuated. However, changes in tax law may warrant a deeper look into your tax situation. Key provisions of the American Taxpayer Relief Act of 2012 are set to expire at the end of the year. In addition, 2013 ushered in higher income and capital gains tax rates.

Accompanying the higher tax rates, the investment income surtax took effect. All of which could create a substantial tax liability if income isn’t managed properly. With uncertainty surrounding the expiration of depreciation provisions in 2014 and substantial fluctuations in commodity prices, tax planning has become increasingly more important. As with all good tax planning, a multi-year approach should be adopted to ensure that a positive tax situation in one year does not result in a negative tax situation in future years.

Remember, the best advice is to contact your tax advisor for questions related to your operation.

Stay tuned for Part 2! And sign up for Growers Edge by clicking this link... it's free and always will be, and it only takes 1 minute!

Crop Insurance Claims May Not Be Paid During Government Shutdown

How will the government shutdown affect your claim payments?

With the shutdown, the crop insurance companies are no longer able to clear policies and claim information through the FCIC clearing house for accuracy. Insurance companies may elect to either pay the claim prior to clearing the information through the FCIC or they will delay the payment until the information has been deemed to be accurate. This could mean waiting until the government is fully restored to get paid on your claim.

If the crop insurance companies elect to pay the claim prior to clearing the information through the FCIC, there is a chance that the claim will later need to be revised. This revision could either require you to pay back a portion of the claim or could result in another payment being made.

Get more updates on crop insurance and free resources for farmers at http://www.growers-edge.com