Category: Farm Management

In the mid-south, the prevented planting provision of crop insurance is of particular importance. Prevented planting claims have grown 500% since 2012 in the Mid-South. The table below illustrates prevented planting indemnities averaged roughly 10% of all crop insurance claims before 2012, growing to an average of 51% of all claims since that time. In contrast, prevented planting claims in the Midwest comprised only 8% of all claims since 2012, highlighting the importance of the provision to Mid-South row crop production. The use of prevented planting in the Mid-South can partially be attributed to a rise in early-season precipitation in the region (over 90% of all prevented planting claims nationally are due to excess moisture-related issues). Row crop acres located in high moisture areas of the delta also contribute. It is critical to understand the important aspects of prevented planting and how to incorporate crop insurance into farm operating plans and financial risk management strategies.

1) If a prevented planting claim is made and a second harvested crop is not planted, the prevented planting claim will not affect the producer’s APH. 2) If a second crop is planted, the second crop must be insured. The producer will receive 60% of their APH for that year for the first crop and the actual yield for the second crop. The producer will only receive 35% of the indemnity but only pay 35% of the premium owed on the first crop. If there is no claim on the second crop, the producer is eligible to receive the remaining 65% of the prevented planting indemnity for the first crop. Note the producer must also pay the remaining premium on the first crop as well. 3) It is worth being aware that while prevented planting claims do not affect rates through APH, they will typically affect rates through a load factor. Load factors are added to premium rates to help cover administrative costs and to ensure sufficient reserves exist to handle non-yield or extreme claims. Prevented planting adjustments are added through such load factors, and the size of the load will depend on the total amount of prevented planting indemnities made across the state. 4) Before making a prevented planting claim, producers should ensure that they have sufficient eligible acres for the number of prevented planting acres they need to make. A producer is not allowed to claim more prevented planting acres than they have planted in the past. However, a producer can “roll” prevented planting acres into other eligible acres they may have of a different crop. Producers should be sure they have sufficient roll acres of the second crop and that the prevented planting indemnity calculated for the second crop would be sufficient to cover the necessary costs associated with the first crop. 5) Be sure that any land with an intended prevented planting claim satisfies the “1 in 4 rule”. For land to be eligible for prevented planting, it must have been planted, insured, and harvested in one of the last four years. Otherwise, the land must have been adjusted for claims other than excess moisture, flood, or drought in one of the last four years. Land that failed the 1 in 4 rule must meet the mentioned requirement for two consecutive years before becoming eligible again for prevented planting.

Keeping the above points in mind, producers can reap risk protection from prevented planting without unwanted surprises and/or adversely affecting their crop insurance rates.

Author: Lawson Connor

Assistant Professor

lconnor@uark.edu

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Connor, Lawson. “Prevented Planting.” Southern Ag Today 2(51.3). December 14, 2022. Permalink

Enterprise budgets are a helpful tool for organizing and understanding what production costs are for the coming year. Producers can use enterprise budgets to examine their farm by crop, variety, irrigation, tillage, or any other production practice. The more specific the enterprise budget, the more a producer can determine where their farm is profitable and where it can be improved. Enterprise budgets are typically developed in the late fall or winter as producers plan their next year’s crop decisions. 

Table 1 is an example of a corn enterprise budget developed at Mississippi State. The budget title should describe what is being examined in as much detail as possible. The income section should be a projection of the prices and yield expected for that enterprise. The costs can be broken down into direct and fixed expenses. Direct expenses are any costs needed in the production of the given crop, such as costs of fertilizers, herbicides, insecticides, seed, labor, etc. Fixed expenses are any costs that would be paid regardless of the production. In the example budget, this would be fixed expenses related to equipment, such as depreciation and interest. Returns above total expenses or break-even prices can then be calculated based on the expenses.

Mississippi State creates yearly enterprise budgets across various crops, like the one presented in Table 1. Costs are obtained from companies across Mississippi, and a multidisciplinary team puts together example enterprise budgets based on the latest trends/recommendations. Since every producer will have different costs and revenues, it is important for each producer to determine their own enterprise budgets that match their farm’s situation. Over 80 example budgets are available to help with this process at: https://www.agecon.msstate.edu/whatwedo/budgets.php. In addition, each state in the Southern Region will have their own version of enterprise budgets, so contact your local Agricultural Economics department for more information (links below).  In times where input costs are especially high, developing an enterprise budget can help in managing those costs and in determining which crop is going to be the most profitable. 

Alabama: https://www.aces.edu/blog/tag/profiles-and-budgets/?c=farm-management&orderby=title

Arkansas: https://www.uaex.uada.edu/farm-ranch/economics-marketing/farm-planning/budgets/crop-budgets.aspx

Florida: https://fred.ifas.ufl.edu/extension/commodityenterprise-budgets/

Georgia: https://agecon.uga.edu/extension/budgets.html

Kentucky: https://agecon.ca.uky.edu/budgets

Louisiana: https://www.lsuagcenter.com/portals/our_offices/departments/ag-economics-agribusiness/extension_outreach/budgets

North Carolina: https://cals.ncsu.edu/are-extension/business-planning-and-operations/enterprise-budgets/

Oklahoma: http://www.agecon.okstate.edu/budgets/

South Carolina: https://www.clemson.edu/extension/agribusiness/enterprise-budget/index.html

Texas: https://agecoext.tamu.edu/resources/crop-livestock-budgets/

Tennessee: https://arec.tennessee.edu/extension/budgets/

Table 1. Example Corn Enterprise Budget

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Author: Brian E. Mills

Assistant Professor and Extension Economist

Delta Research and Extension Center

Mississippi State University

Email: b.mills@msstate.edu

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Mills, Brian. “Enterprise Budgeting.” Southern Ag Today 2(50.3). December 7, 2022. Permalink

Through 2022, the ag sector in the Southern Ag Today (SAT) states has sustained periods of drought, volatile prices in respective markets, and interest rate hikes. As mentioned in a previous article (Martinez and Ferguson 2022), it is crucial to know where agriculture debt is in our SAT states during these unusual times. This article covers the latest commercial bank reports from the U.S. commercial quarterly performance reports. As a refresher, these reports highlight agricultural loans and the loans’ status (on time or late). Figure 1 displays the total loan volume (yellow line) and total loan volume for all three late type volumes (30-89 days late, 90+ days late, Non-Accrual) for the last seven quarters. The totals are for all the Southern Ag Today States. 

Through the third quarter of 2022, non-accrual loans and 90+ days late have continued downward trends. Non-accrual loan volume continued to decrease and is down 65% from a year ago. While 90+ days late loans stayed relatively steady. A real positive sign is seen in the total debt volume for loans that are 30-89 days late. The total volume of debt in this category is down $4 billion compared to a year ago. These are positive signals that bad loan debt load hasn’t increased during this turbulent year. All three late and bad loan types continue to show signs of good debt health for the SAT states, and this is reinforced by the total loan volume being approximately unchanged from a year ago.   

As producers navigate through this environment, the current status of commercial ag debt appears healthy and even improving. In the coming months, it is essential that producers are mindful of their working capital, and they should continue the positive strategies that they have implemented thus far. 

References

Martinez, Charley, and Haylee Ferguson. “Current Non-Real Estate Farm Debt.” Southern Ag Today 2(30.3). July 20, 2022. Permalink

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Martinez, Charley, and Haylee Ferguson. “Current Non-Real Estate Farm Debt.” Southern Ag Today 2(49.3). November 30, 2022. Permalink

While some states across the southern region have strict environmental regulations on applying broiler litter to farmland, other states can apply year-round. Fall application of litter is a common practice by some producers due to wet soil conditions in the Spring, lack of time to spread litter near planting, and litter availability in the spring vs. the fall.  However, there are economic consequences to Fall application of broiler litter. Applying broiler litter in the fall, fallow ground will suffer from ammonium volatilization and leaching, resulting in little to no nitrogen come spring. Therefore, the economic value of spring application is higher compared to the fall application on fallow soils. Ammonium volatilization and leaching can be avoided in the fall if broiler litter is applied to cropland with a planted cover crop.  

Regardless of when broiler litter is applied, the nutrient content of litter varies depending on in-house management strategies and feed mix. In February, I wrote an article illustrating the range of broiler litter nutrient content sampled in Kentucky (article found here). The average “as received” nutrient content of broiler litter was 50 lbs of nitrogen (N), 56 lbs of phosphorous (P₂O₅), and 47 lbs of potassium (K₂O) per ton. Using this nutrient content (assuming your soil tests indicate the need for P₂O₅ and K₂O) and current fertilizer prices of $825/ton for urea ($0.90/lb N), $930/ton for DAP ($0.66/lb P₂O₅), $857/ton for potash ($0.71/lb K₂O), the economic value of broiler litter applied in the fall to fallow cropland is $65/ton. Given the variability in the nutrient content of broiler litter, Figure 1 illustrates the fall value of broiler litter applied to fallow cropland across 740 litter samples at current fertilizer prices. If broiler litter is applied to cover crops, the value increases to $88/ton. Both fall application values have increased compared to last year. Fall broiler litter values are up 20% compared to 2021 and have more than doubled since 2020.  

If litter availability in the spring is a concern, stockpiling litter purchased in the fall can be an option if local, state, and federal regulations allow. Producers can expect minimum nutrient loss for spring application with the correct storage techniques and a properly staked litter pile. If the same commercial fertilizer prices hold, the average broiler litter would have a value of $92/ton if properly stored and applied in the spring. As illustrated, broiler litter’s value varies based on application timing, nutrient content, soil test data, and commercial fertilizer prices. It is critical to measure boiler litter and understand the economic and environmental consequences of fall vs. spring management strategies.  

Figure 1. Variation in fall boiler litter value applied to fallow cropland given current commercial fertilizer prices and 0% N, 80%P2O5, and 100% K2O plant available nutrients (n=740)

Author: Jordan Shockley

Associate Extension Professor

jordan.shockley@uky.edu

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Shockley, Jordan. “Fall vs. Spring Application of Broiler Litter.” Southern Ag Today 2(48.3). November 23, 2022. Permalink

The deadline for Pasture, Rangeland, and Forage (PRF) signup on December 1^st is coming up quickly. Whether you’ve had plenty of rain this year or are in a severe drought, it’s worth visiting with your crop insurance agent to review your PRF coverage. You may know PRF by its other name, ‘rainfall insurance’, a good name for a product that insures you against lower precipitation. You can find details on PRF’s structure, coverage options, premiums, and more here.

A key component of PRF coverage is selecting the correct interval(s), two-month periods through the year for which you will establish coverage against lower-than-average rainfall. There are many ways to choose the appropriate intervals and the share of coverage you intend to allocate to each. One tool is the National Oceanic and Atmospheric Administration’s (NOAA’s) Seasonal Color Outlook Maps. 

These maps express expectations for precipitation in terms of the chance that precipitation is above or below historic normal for the period; they aren’t necessarily indications of how much more or less precipitation to expect. For example, the map below represents expectations for the January to March quarter of 2023. You can see that forecasts for all of Texas and Florida, along with portions of coastal states from Louisiana, up to North Carolina, suggest a 33-50% chance of precipitation being ‘Below Normal’ for these months. The same forecasts for parts of Kentucky, Arkansas, and Tennessee suggest a 33-40% chance of ‘Above Normal’ precipitation. Other maps detailing later 2023 forecast similar expectations through the April-May-June period, when La Nina conditions are forecast to break and ‘Normal’ precipitation conditions are expected to return to the south. 

Using these maps together across a year may be a good place to start picking intervals to allocate coverage. Though these maps can’t necessarily tell you what share of precipitation to insure, they can indicate the intervals more likely than others to see ‘Below Normal’ precipitation, precisely the metric indemnities from PRF are based. Consider southeastern Georgia. The map below suggests a 50% chance of ‘Below Normal’ precipitation from January to March. Corresponding maps on NOAA’s website show Equal Chances (corresponding to roughly ‘Normal’ precipitation) beginning in March and holding throughout the year. Keeping in mind that PRF indemnities are based on actual rainfall compared to historical averages, these maps suggest that a producer may consider weighting a greater share of their coverage to the first quarter of 2023 compared to the last three quarters of 2023. 

There are plenty of other considerations to make when allocating coverage. This is just one simple tool to consider when assessing your options. You can find the NOAA Seasonal Precipitation Outlook maps here, and if you have more questions on PRF coverage, visit your USDA certified crop insurance provider or your local Extension faculty about your options. 

Author: Justin Benavidez

Assistant Professor – Management Economist, District 1

justin.benavidez@ag.tamu.edu

Benavidez, Justin. “Using Seasonal Precipitation Outlook Maps in PRF Planning.” Southern Ag Today 2(47.3). November 16, 2022. Permalink