Factor SURE Into Prevented Planting Decision

Factor SURE Into Prevented Planting Decision

Program can supplement income, but should be a major consideration in signing up.

A minor consideration in the decision whether to select prevented planting or to continue planting are potential payments from the Supplemental Revenue Assistance (SURE) federal disaster program.

"Unlike prevented planting insurance, which is calculated crop by crop, the SURE payment is triggered at the whole-farm level," says Andy Swenson, North Dakota State University Extension Service farm and family financial specialist. "As defined under SURE, a payment is made if 'actual farm revenue' is less than the 'farm revenue guarantee.' The payment is 60 % of the shortfall. Prevented planting makes it more likely that there will be a SURE payment. If the entire farm must be prevent planted, a SURE payment would be almost certain."

The impact on SURE payments from prevented planting is relatively minor because the SURE revenue guarantee is reduced.

There are several eligibility requirements for the SURE program. The producer must carry crop insurance on all crops unless a crop has less than 5 percent economic significance to the farm. The farm must be in or adjacent to a county that has been declared a disaster or the farm must have a 50 percent revenue shortfall. The farm must have at least one crop with a 10 percent revenue shortfall.

Meeting these criteria should not be a problem for North Dakota farms in 2011, according to Swenson.

Examples

The following examples show how to calculate SURE in a prevented planting situation.

The example farm has 1,000 acres of wheat and 1,000 acres of soybeans.

The SURE guarantee is for the whole farm, which is a summation of calculations by crop. The calculations by crop are split between planted and prevented planted acres. In this example, half the wheat (500 acres) were planted and half (500 acres) are prevented planting. The 1,000 acres of soybeans were planted.

To calculate the farm revenue guarantee:

For the 500 acres of wheat that was planted, the 40 bushels per acre actual production history (APH) is multiplied by 115%, for a total of 46. The 46 is multiplied by the $10.50 crop insurance price (the higher of the $9.89 spring price and the estimated harvest price of $10.50). This is multiplied by an assumed 70% crop insurance coverage level. The total ($338.10) is multiplied by the 500 acres planted, for a total of $169,050.

For the 500 acres of prevented planted wheat, the 40 bushel per acre APH is multiplied by 115% (46). The 46 is multiplied by the $9.89 crop insurance price (only the spring price is used for prevented planting) for a total of $454.94. This amount is multiplied by an assumed 70% crop insurance coverage level ($318.46) and then multiplied by an assumed 60% prevented planting insurance coverage ($191.07). The total comes to $95,535 when multiplying the $191.07 per acre by the 500 acres.

For the 1,000 acres of soybeans that were planted, the 30 bushel per acre APH is multiplied by 115% (34.50). The 34.50 is multiplied by the $13.75 crop insurance price (the higher of the $13.49 spring price and estimated harvest price of $13.75) for a total of $474.38. The $474.38 then is multiplied by the 70% crop insurance coverage level ($332.06). This amount then is multiplied by the 1,000 acres of soybeans that were planted for a total of $332,060.

The SURE farm revenue guarantee is then $596,645 ($169,050 plus $95,535 plus $332,060).

"The SURE revenue guarantee is capped at the 90% of the sum of acres multiplied by the APH and then multiplied by the crop insurance price," Swenson says. "However, only in rare cases where producers had unusually high levels of crop insurance coverage would the cap be hit."

To calculate the SURE actual farm revenue:

Assume the harvest price is $10.50 per bushel for wheat and $13.75 for soybeans as defined under revenue protection insurance. The assumption for the 2011 marketing year average price is $10 per bushel for spring wheat and $13 for soybeans. Also, assume that actual farm yields drop to 35 bushels per acre for wheat and 28 bushels per acre for soybeans because of the later than normal planting.

Using these assumptions, the estimated wheat value would be $175,000 (35 bushels multiplied by $10 and then multiplied by the 500 acres). The estimated soybean value would be $364,000 (28 bushels per acre multiplied by the $13 per bushel and then multiplied by the 1,000 acres).

Looking at crop insurance indemnities (minus crop insurance premiums on acres that received an indemnity) on prevented planting wheat would amount to $76,075. This is calculated by taking 40 bushels per acre APH multiplied by $9.89 (395.60). The 395.60 is then multiplied by the 70 percent coverage level (276.92), which is multiplied by the 60 percent prevented planting coverage ($166.15). A $14 crop insurance premium is subtracted from the $166.15. This leaves a total of $152.15 per acre, which is multiplied by the 500 acres for a total of $76,075.

A few other items are included as revenue. The 15% of direct payments for the farm is $3,000 (assuming $10 per acre of direct payments). ACRE or CCP payments and gains from the marketing assistance loan program would by $0.

Total farm revenue in this example would be $618,075 ($175,000 plus $364,000 plus $76,075 plus $3,000).

There would be no SURE payment in this example because the actual farm revenue is greater than the farm revenue guarantee.

However, if the farm had prevented planted all the wheat acres, but planted all the soybeans, the total farm guarantee would be $523,133, while the total farm revenue would be $519,150. In this case, the SURE payment would be $2,390 ($523,133 minus $519,150 and multiplied by 60%).

If the entire farm had to be prevent planted, the total farm guarantee would be $386,540, while the total farm revenue would be $322,124. In this case, the SURE payment would be $38,650 ($386,540 minus $322,124 and multiplied by 60%).

Conclusions

"SURE can help supplement farm income that has prevented planting, but it should not be a major consideration in the prevented planting decision," Swenson says. "Projecting yields and prices are much more important. However, higher levels of crop insurance coverage and higher levels of prevented planting insurance would increase the likelihood and size of SURE payments."

As shown in the examples, there are many moving parts to the SURE program. It depends on the crops grown, level of crop insurance coverage, crop insurance and marketing year average prices, the APH and 2011 actual yields.

A spreadsheet is available at http://www.ag.ndsu.edu/farmmanagement/prevented-planting for users to try different scenarios to evaluate potential SURE payments.

Source: NDSU Extension Communications

TAGS: USDA Soybean
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