Federal Crop Insurance: Record Prevent Plant (PPL) Acres and Payments in 2019
Released: 2020-01-15T00:00:00

Introduction

This report analyzes the effects of historic wet conditions during the 2019 growing season on major U.S. field crops, primarily corn and soybeans. These effects include record acres prevented from being planted, widespread delays in planting and harvesting of the corn and soybean crops, large crop insurance indemnity payments due to prevented plantings and weather-related yield losses, and additional ad hoc payments announced for producers experiencing both trade damage and losses from prevented planting.

This report focuses on corn and soybeansâthe two largest commercial crops grown in the United States in terms of number of producers, cultivated area, volume produced, and value of production. Together, they account for 54% of land planted to major field crops since 2010. They are critical inputs for several sectors, including the livestock, biofuels, food processing, and export sectors. As a result, any delay or reduction from expected output for either of these crops can have important implications for market prices and the broader U.S. farm economy.

The U.S. Department of Agriculture (USDA) forecasted an increased role of federal support for farm incomes in 2019âincluding $22.4 billion in direct support payments and $10.3 billion in federal crop insurance indemnity payments. Together, the forecast of USDA farm support plus crop insurance indemnities of $32.7 billion represents a 35.3% share of U.S. net farm income $92.5 billion. Since 2010, the federal crop insurance program has emerged as the largest component of the farm safety net in terms of taxpayer outlays, averaging $7.8 billion annually in premium subsidies. While USDA implements the federal crop insurance program, Congress is responsible for authorizing and funding it. The federal crop insurance program is permanently authorized by the Federal Crop Insurance Act of 1980 ( P.L. 96-365 ), as amended (7 U.S.C. Â§1501 et seq. ) and receives mandatory funding. Each of the past three farm billsâP.L. 10-246 (2008), P.L. 113-79 (2014), and P.L. 115-334 (2018)âhas included a separate title to modify crop insurance program provisions.

Wet Spring Affects Corn and Soybean Planting

U.S. agricultural production got off to a late start in 2019 due to prolonged cool, wet springtime conditions throughout the major growing regions, particularly in states across the northern plains and eastern Corn Belt. Saturated soils prevented many farmers from planting their intended crops (see text box below). Such acres are referred to as "prevent plant" (PPL) acres.

In addition to the unplanted acres, sizeable portions of the U.S. corn and soybean crops were planted later than usual, especially in Illinois, Michigan, Missouri, Ohio, Wisconsin, and North and South Dakota. Traditionally, 96% of the U.S. corn crop is planted by June 2, but in 2019 by that date 67% of the crop had been planted ( Figure 1 ). Similarly, the U.S. soybean crop was planted with substantial delays. By June 16, 77% of the U.S. soybean crop was planted, whereas an average of 93% of the crop has been planted by that date during the previous five years ( Figure 2 ).

Planting Delays Complicate Producer Choices

Widespread planting delays for corn and soybeans pushed both crops' growing cycle into hotter, drier periods of the summer than usual. In addition, maximizing yield potential will likely depend on beneficial weather extending into the fall to achieve full crop maturity. This would potentially make crop growth vulnerable to an early freeze in the fall that would terminate further yield growth.

Also, planting delays increase the complexity of producer decisionmaking. When the planting occurs after a crop insurance policy's "final planting date" (FPD), the "late planting period" clause in the policy comes into play, and insurance coverage starts to decline with each successive day of delay ( Figure 3 ).

Insured acres planted on or before the FPD receive the full yield or revenue coverage that was purchased. However, if the crop is planted after the FPD, insurance coverage is reduced by 1% per day throughout the late-planting period (which begins the day after the FPD and extends for 25 days for both corn and soybeans). During the late-planting period, producers must decide whether to opt for a PPL indemnity payment or try to plant the crop under reduced insurance coverage with a heightened risk of reduced yields.

Despite the risks associated with this choice, large portions of both the corn and soybean crops were planted after the FPD ( Figure 1 and Figure 2 ). The choice of planting versus not planting was complicated in 2019 by Secretary of Agriculture Perdue's announcement on May 23 that only producers with planted acres would be eligible for "trade damage" assistance payments in 2019 under the Market Facilitation Program (MFP). The Secretary's announcement, which came in the middle of the planting period, could have encouraged greater planting than would have otherwise occurred as farmers sought to ensure eligibility for the 2019 MFP payment.

During 2018, U.S. soybean and corn producers had received MFP payments based on their farms' harvested output, including $1.65 per bushel for soybean and $0.01 per bushel for corn. For 2019, the Secretary of Agriculture was offering higher payment rates of $2.05 per bushel for soybeans and $0.14 for corn. However, the MFP payment formula would use planted acresânot harvested productionâand combine the commodity-specific payment rates of major program crops (referred to as "non-specialty crops") at the county level (weighted by historical county planted acres and yields) to derive a single county-level MFP payment rate. The potential for 2019 MFP payments could have provided sufficient incentive for some producers to plant their corn and soybean crops under conditions they would not have otherwise (e.g., to plant their crops in wet fields where potential yield-reducing problems associated with seed germination and soil compaction are increased). If such planting did occur, it likely prevented even larger PPL acres from being reported.

Additionally, overarching uncertainty remained in 2019 associated with the then-ongoing trade dispute between the United States and China. The dispute had reduced U.S. agricultural exports in 2018 and dampened prospects for both commodity prices and export volumes in 2019. These factors further complicated producers' evaluations of market payoffs under different planting and crop insurance choices.

Record PPL Acres in 2019

The two principal sources for data on PPL acres within USDAâthe Farm Service Agency (FSA) and the Risk Management Agency (RMA)âprovide similar but not identical estimates of PPL ( Figure 4 ). FSA oversees the implementation of USDA's farm revenue-support and disaster assistance programs. All producers that participate in these farm programs are required to report their acreage and yields to FSA in an annual acreage report that details crop production activity by specific field.

RMA oversees the implementation of USDA's crop insurance programs. All participating producers provide detailed information on insured crops and land to RMA. Farmers report the same number of acres to RMA and FSA. However, not all farms participate in USDA farm programs or buy federal crop insurance. As a result, differences in reported acres planted, harvested, and prevented from being planted occur between the two sources.

As of November 1, 2019, U.S. farmers reported to FSA that, of the cropland that they intended to plant this past spring, they were unable to plant 19.6 million acres due primarily to prolonged wet conditions that prevented field work. In contrast, RMA reported a record 18.8 million of PPL acres. The previous record for total PPL acres was set in 2011, when RMA reported 10.2 million acres and FSA reported 9.6 million of PPL.

PPL Comparison by Crop: Corn and Soybeans Dominate

In 2019, FSA reported 19.6 million PPL acres, including 11.4 million acres of corn and 4.5 million acres of soybeansâboth crops established new records for PPL acres by substantial margins. The previous record PPL for corn was 2.8 million acres in 2013, and for soybeans it was 2.1 million acres in 2015. By way of comparison, in 2019 RMA's PPL acres included slightly more soybean (5.3 versus 4.5 million) and wheat (2.4 versus 2.2 million) acres and less corn (9.5 versus 11.4 million) acres. For both datasets (FSA and RMA), corn, soybeans, and wheat accounted for over 90% of PPL acres (92.3% for FSA, 91.5% for RMA).

RMA reported 2019 PPL indemnity payments of over $4.2 billion, with $2.6 billion (60.6%) for corn PPL acres and $1.1 billion (25%) for soybean PPL acres ( Table 1 ). The 2019 average national PPL payment rate for all crops was $224.04 per acre. Payment rates vary by crop and ranged from a low of $50 per acre for millet to a high of $1,432 per acre for dark air cured tobacco.

Some economists have suggested that the large discrepancy in corn PPL acres between the two data sources (1.9 million acres) could be the result of acres originally intended to be planted to soybeans being claimed as corn PPL acres to obtain the higher PPL indemnity for corn available under federal crop insurance. In their analysis of historical PPL indemnity rates, the PPL payment rate was almost always higher for corn than soybeans. In 2019, corn's average PPL payment rate of $270.13 per acre was about $70 per acre (34.7%) higher than soybean's average PPL payment rate ( Table 1 ). Thus, producers had an incentive to claim PPL for corn to the maximum extent possible, whether corn or soybeans was the intended crop.

A breakout of PPL acres by state and by major commodity is available in the Appendix to this report ( Table A-1 ).

PPL Comparison by State: South Dakota Stands Out

The unusually wet spring conditions that produced the record PPL acres in 2019 were heavily concentrated in Corn Belt states but were also reported in significant amounts in Arkansas, Texas, Mississippi, Louisiana, North Carolina, Tennessee, New York, and Oklahoma ( Table 2 ). However, the 3.9 million acres of PPL reported in South Dakota (primarily the eastern portion of the state) were more than double second-place Ohio, where 1.4 million PPL acres were reported. South Dakota's PPL acres accounted for over 20% of the national total in 2019, while its PPL indemnity payments of over $925 million accounted for 21.9% of national PPL indemnity payments.

PPL Acres Eligible for Multiple Payments

Farmers who were unable to plant a crop during the spring of 2019 due to natural causes were eventually eligible for multiple payments under federal farm programs. First, federal crop insurance provides PPL coverage under a standard policy that covers pre-planting cost and potential revenue loss. Second, the FY2019 supplemental authorized disaster assistance payments for PPL (referred to as "top up") in addition to crop insurance indemnities. Third, the Administration's 2019 MFP payments were based on planted acres. However, payments were also included for eligible cover crops planted on PPL acres.

Crop Insurance PPL Indemnity Payments

If producers are prevented from planting an insured crop because of an insured peril (described below), then the PPL provisions of a standard crop insurance policy compensate the affected producers for pre-planting costs incurred in preparation for planting their insured crops.

Crop insurance PPL coverage is available for any farm-based COMBO policy. COMBO policies include individual yield or revenue insurance policies:

Revenue protection (RP) insures a producer-selected coverage level of the farm's historical yield times the higher of the projected price or the harvest price. RP with the harvest price exclusion insures a producer-selected coverage level of the farm's historical yield times the projected price. Yield protection insures for a producer-selected coverage level of the farm's historical yield.

Area-based revenue and yield policiesâsuch as Area Risk Protection and Area Yield Protectionâthat rely on county yields and revenues to trigger indemnity payments are not eligible for PPL indemnities.

Calculating the PPL Indemnity

As described in the section " Planting Delays Complicate Producer Choices ," policyholders who are prevented from planting acres until after the FPD may choose not to plant the crop and instead receive a PPL indemnity, calculated as a percentage of the original insurance guarantee (e.g., 55% for corn and 60% for soybean). For example, suppose that a corn producer with an insurable yield of 200 bushels per acre has purchased RP at an 80% coverage level with an RMA projected price of $4.00 per bushel. For this policy:

The RP coverage guarantee is 200 x $4.00 x 80% = $640 per acre; The PPL indemnity is 55% x $640 = $352 per acre.

Alternately, consider a hypothetical soybean producer with an average production history yield of 50 bushels per acre, an RMA projected price of $9.54 per bushel, and an RP policy with an 80% coverage level. For this policy:

The RP coverage guarantee is 50 x $9.54 x 80% = $381.60 per acre; The PPL indemnity is 60% x $381.60 = $228.96 per acre.

FY2019 Supplemental Top Up Payments for PPL Losses

On June 3, 2019, Congress passed a FY2019 supplemental appropriations bill ( P.L. 116-20 ) that, among other assistance, authorized $3 billion in additional funds for disasters that impacted farmers and ranchers. The disaster funding is administered through multiple USDA programs and provides financial assistance to producers with production losses on both insured and non-insured crops. All of the agriculture funds are designated as emergency spending.

The supplemental funding covers several types of agricultural losses from 2018 and 2019, including losses for crops prevented from being planted in 2019. In particular, producers who claimed PPL losses in 2019 are eligible for a top up of 10%-15% of their PPL indemnity. The PPL top up is 15% for producers with standard RP policies that include the harvest price option as a default and 10% for producers who opted out of the harvest price option and selected the RP with harvest price exclusion policy. For 2019, 91% of corn and soybean insured acres were covered by RP with harvest price option. Under the corn and soybean examples introduced earlier, the supplemental top up would be calculated as:

For a corn RP policy: 15% x $352 = $52.80 per acre; For a soybean RP policy: 15% x $$228.96 = $34.34 per acre.

Requirements Associated with the Top Up Payments

The FY2019 supplemental program limits payments to up to 90% of losses, including payments from crop insurance and the non-insured disaster assistance program (NAP) but excluding MFP payments. For producers who did not purchase crop insurance or NAP in advance of the natural disasters, payments are limited to 70% of losses. In addition, all recipients of any FY2019 supplemental disaster payments (including the PPL top up) are required to purchase crop insurance or NAP for the next two crop years.

MFP Payments for PPL Cover Crops

Under USDA's 2019 MFP program, eligibility for paymentsâwhich range from $15 to $150 per acreâis restricted to planted acres, thus excluding any PPL acres. However, on June 10, 2019, Secretary Perdue announced that USDA was exploring "legal flexibilities" to provide a minimal per acre MFP payment to farmers who opted for a PPL indemnity but also planted an MFP-eligible cover crop (such as barley, oats, or rye) with the potential to be harvested and for subsequent use of those cover crops for forage. On July 29, 2019, USDA announced a 2019 MFP payment rate of $15 per acre for PPL losses claimed on non-specialty crop acres followed by a USDA-approved cover crop.

Combined PPL Payments from Multiple Programs

In summary, a producer can combine payments from multiple programs without having planted the intended cash crop. While it is not likely to cover all losses incurred, the combination can result in a higher payment in 2019 than was possible in previous years. Based on the above example, a corn farmer with a standard RP policy and an 80% coverage level could receive combined PPL payments of $419.80 per acre, including the PPL indemnity ($352), the supplemental top up payment ($52.80), and the MFP payment for an eligible cover crop planted on PPL acres ($15). By comparison, the original RP policy with 80% coverage would have guaranteed a maximum revenue of $640 per acre had the insured crop been planted. On such an RP policy, a yield loss of nearly 66% would be necessary to generate an indemnity payment that would match the federal payout under the suite of multiple programs available to PPL acres in 2019.

Similarly, the hypothetical soybean producer with a standard RP policy and an 80% coverage level could receive combined PPL payments of $278.30 per acre, including the PPL indemnity ($228.96), the supplemental top up payment ($34.34), and the MFP payment for an eligible cover crop planted on PPL acres ($15).

However, the second and third payment programsâthe top up and the extended MFP payment on eligible cover cropsâwere not known until later in the growing season (June 3 for the top up and July 29 for the extended MFP payment) after most late planting versus PPL decisions had been made. Some preliminary research suggests that some farmers that might have been better off choosing PPL with top up and extended MFP on cover crops but instead elected to plant corn or soybeans. This choice may have been driven in part by then-relatively high futures market prices and the prospect of qualifying for the 2019 MFP payment, which required planting an eligible crop as announced by Secretary Perdue on May 23.

Late Harvest Suggests Additional Crop Losses

In addition to the PPL acres, large portions of the corn and soybean crops were planted two to four weeks later than usual ( Figure 1 and Figure 2 ). Such late planting meant that initial crop development would be behind normal across much of the major growing regions and that eventual yields would depend on beneficial weather extending late into the fall to achieve full crop maturity. The late planting also rendered crop growth vulnerable to an early freeze in the fall. Widespread wet conditions continued into the fall, especially in the northern plains and western Corn Belt. North Dakota recorded the wettest September on record in 2019, while Iowa recorded the wettest October.

Ultimately, much of the corn crop was harvested under wet conditions with high moisture content that required drying. An early cold spell in the Upper Midwest had already heightened the demand for propane that, in addition to serving as the primary energy source for drying corn, is used to heat hog barns and for other farm operations. This resulted in limited supplies and higher prices for propane. Many farmers chose to leave their corn in the field until more beneficial market conditions emerged. As of December 16, 2019âthe date of USDA's final weekly Crop Progress report for 2019âan estimated 8% (or 7.2 million acres) of the U.S. corn crop had yet to be harvested, adding further to the uncertainty of yields and harvested acreage for the 2019 corn crop ( Table 3 ).

Implications for Congress

Saturated soil conditions heading into the winter months suggest a continuation of wet conditions into the 2020 planting season and the potential for a repeat of planting difficulties in the months ahead. These unusual conditions have come in the midst of a continued trade dispute between the United States and China that has dampened demand for U.S. agricultural products from one of the United States' principal foreign markets and has compelled the Administration to undertake large ad hoc "trade aid" payments to producers of selected commodities.

The record PPL acreage has resulted in record crop insurance PPL indemnity payments under the PPL provisions of standard federal crop insurance policies in 2019. Should wet conditions persist into 2020 and create a situation where farmers are again confronted with delayed or prevented planting, some producers may also bump up against a limit on the continued use of PPL. Under RMA rules, PPL can be taken only for crops planted on an insured unit in one of the four preceding crop years. Thus, four consecutive years of PPL would result in ineligibility for the affected cropland. Furthermore, while crop insurance indemnities can help to offset some of the financial loss associated with prevented planting or poor harvests, they are not designed to cover all of the associated losses.

Another concern for producers is the timing and clarity (or lack thereof) with respect to USDA announcements about new payment programs that are linked to producer production choices. In general, to avoid adversely influencing producer behaviorâa precept of most farm policiesâsuch announcements should be made either well in advance of the spring planting period or well after production decisions have been made.

A final looming concern for market watchers and policymakers is the increased role of USDA payments to support farm incomes in 2019. USDA forecasts $22.4 billion in direct support payments to the U.S. agricultural sector in 2019, including $14.3 billion in direct payments made under trade aid programs as well as over $8 billion in payments from other farm programs. In addition, USDA forecasts $10.3 billion in federal crop insurance indemnity payments. Together, forecasts of USDA farm support plus crop insurance indemnities combine for $32.7 billion in payments that represent a 35.3% share of USDA's November forecast of 2019 net farm income of $92.5 billion.

Without this federal support, net farm income would be lower, primarily due to continued weak prices for most major crops. Should these conditions persist into 2020, they would signal the potential for continued dependence on federal programs to sustain farm incomes in 2020.

Appendix. Supplementary Table