Officials eye record prevented planting situations in ND, SDFARGO, N.D. — A big delay in planting because of widespread excess water in the region is leading to more prevented planting insurance paid out — by far — than any previous year, and another banner year of prevented planting insurance, officials say.
By: Mikkel Pates, Agweek
FARGO, N.D. — A big delay in planting because of widespread excess water in the region is leading to more prevented planting insurance paid out — by far — than any previous year, and another banner year of prevented planting insurance, officials say.
Doug Hagel, regional director for the U.S. Department of Agriculture’s Risk Management Agency in Billings, Mont., acknowledges that top federal agency heads in the state are “kicking around” the possibility of a whopping 4 million acres of prevented planting insurance coverage in North Dakota this year, although he emphasizes no official estimates will be made until mid-July.
Other officials quietly are speculating the figure could exceed 5 million acres, based on preliminary reports from the field.
If 5 million acres goes unplanted, it will result in a significant economic impact in a state that normally plants 22 to 23 million acres — regardless of whether prevented planting insurance covers some part of the input costs. Even if there is higher grain value because of a short crop, it means less storage and transportation business and associated economic activity.
The RMA reports prevented planting acres June 30 and the Farm Service Agency’s reporting deadline is July 15.
“Three to four weeks after the deadline, we’ll have a better idea of what we think we’re facing,” Hagel says. (In 2012, RMA is expecting to change its reporting deadline to July 15, so producers can report acres to each agency, and they can share the data.).
The record-high year for prevented planting coverage in North Dakota was 3 million acres in 1999, Hagel says. The regional office oversees agency activity in North Dakota, South Dakota, Montana and Wyoming.
“By far this looks like it’s going to be a worse year than 1999,” Hagel says. “There’s a concentration of problems in the northwest counties, but it’s almost statewide.”
End to the abuse?
Meanwhile, the RMA is making policy changes in response to ongoing wet conditions and to end perceived abuse for prevented planting coverage on land that no longer is available to plant. The agency is planning to change prevented planting procedures for 2012 — ending prevented planting eligibility for a given acreage parcel if it hasn’t been planted in any of the past four years. Usually, this is because it is too wet.
The RMA had a policy of discontinuing coverage as of 2011 if the land hadn’t been planted for three years, but only in the “Prairie Pothole” states of Montana, North Dakota, South Dakota, Minnesota and Iowa.
Now, in 2012, farmers nationwide will have the four-year rule. Their “look-back” for figuring prevent-plant eligibility will be crop years 2011, 2010, 2009 and 2008.
The liberalized look-back is related to national planting concerns this year.
“We were thinking about the three years, but there’s been unprecedented moisture, and there was a concern we’d impact producers that were legitimately hurt in the last couple of years,” Hagel says.
In reality, Hagel says, farmers in 2011 are trying “like heck to plant this year” — both to keep land eligible for prevented planting coverage and to take advantage of projected high commodity prices, which probably is a bigger reason.
Ending after four years
Hagel acknowledges there has been controversy about prevented planting policy administration.
“We’ve had cases where producers have been paid on the same acreage for 17 consecutive years,” Hagel says.
Some of those are in North Dakota, he says.
“The purpose of the crop insurance program agency is to insure growing crops. The Natural Resources Conservation Service has programs for land-idling,” Hagel says.
The RMA paid out on 3.9 million acres in North Dakota in 1999, but. in recent years. has ratcheted down coverage on unplanted acres, where land continually is inundated. In 2009, prevented planting was paid on 1.9 million acres, but probably would have paid on up to 2.6 million acres if the old rules were in place.
Abuses have been a combination of farmer and company fault.
“Some producers would cultivate in the fall, even if they knew they weren’t going to plant,” Hagel says. “Some of them would mow cattails, burn off sloughs, saying they were going to plant in the spring, but it was always too wet.”
He says the small amount of prevent-plant payments made in 2008 were questionable because it was a drought year. He says 186,000 acres in North Dakota were prevented planting acres that year and were unplantable because they were “on a slough” or wet acres.
Hagel says there have been arbitration cases in which companies have denied claims for farmers using questionable practices, only to have them overturned by arbitration cases, but he couldn’t immediately offer details.
Renting for prevented planting?
He knows of a real case in which a 4,000-acre North Dakota farmer rented about 2,500 acres, “just for the purpose of prevent-planting.”
“If you have a guy who has no intention of planting and he gets 70 percent of his yield guarantee, that’s a pretty good deal,” and “he never ends up paying a premium either, because the indemnity ends up paying the premium.”
The burden is shifted to other farmers — “the ones who are planting crops,” Hagel says.
Some farmers involved in these kinds of claims have been doing it with rented land because of pressure from a landlord.
“Now they can tell the landlord, ‘I’m not going to rent that land anymore because I can’t get coverage for it.’” Hagel says. “Maybe they’ll get into some acreage reserve program.”
In cases of excessive, localized losses, the RMA spread those losses across a larger area — typically across a state — so that western North Dakota farmers would be paying extra premiums to pay for prevented planting coverage in the east or northeast part of the state. Ditto in South Dakota.
“Usually, in crop insurance, 60 percent of the (premium increase) load goes into the county itself, and we take another 30 percent and spread it around in five or six counties, and the other 10 percent is statewide,” Hagel says.
“With prevent-plant, we spread it equally across the whole state. If we didn’t do that, the insurance would be unaffordable in the county where the biggest load was,” he adds.
Some insurance companies have allowed year-after-year payouts, even though they ran counter to RMA regulations.
“I think the companies were trying to help these people out, but the statute does not allow continuing to insure these acres,” Hagel says.
He says the result, however, is that farmers in the western part of the state have had 20 and 30 cent indemnities for every dollar in coverage, while farmers in the Prairie Pothole region around Devils Lake, N.D., and several nearby counties have had as high as 70 to 80 percent average payouts for every dollar in premiums.