Impacts to Spring-Planted Crops Could Spiral into Fall-Planted Crops as Sept. 30 Crop Insurance Deadline Approaches
The end-of-2020 surge in commodity prices capped what was already a tumultuous year. Corn prices in December 2020 reached $4.00 per bushel, the highest since 2013, and continue to rise, reaching above $5.00 per bushel. Soybean prices rose to more than $10.40 per bushel by November 2020 and have continued upward, above $13.70 per bushel, also the highest since 2013. By fall 2020, wheat prices had reached $4.70 per bushel and have risen as high as $6.60 per bushel, again, the highest since 2013.
The June Acreage report indicated farmers shifted more acres to corn, with soybean and wheat expectations nearly unchanged. For the 2021/22 crop year, USDA is estimating that corn planted area will be 92.7 million acres, an increase of 1.6 million acres from what was first reported for corn acres in March in the Prospective Plantings report. Soybean planted acres remain at the 87.6 million acres reported in March and wheat planted acres are estimated at 46.7 million acres, relatively close to March estimates of 46.4 million acres. The combined corn and soybean acres of 180.3 million acres, up from the 178.7 million acres first estimated in March, indicate acres were brought back into production to take advantage of current commodity prices.
For fall planted crops, such as fall oats, fall barley and Durum wheat in some states, the impact of shifted spring planted acres could potentially reduce fall planted acres or shift growers to add a cover crop that could be harvested and insured as a second crop. For growers who are planting an insured cover crop, insurance attaches to the crop at the time of planting and growers must follow the RMA rules for Good Farming Practice (GFP) determinations. There is also flexibility for growers needing to address failed crops and dates for terminating any regrowth of the failed crop, which will be particularly important this year regarding drought impacts.
Disaster and Drought Impacts to Fall Crops
Speaking of drought, according to the July 22 release of the National Drought Mitigation Center’s U.S. Drought Monitor, nearly 80% of the West plus North and South Dakota are categorized as D2 (severe drought) or higher. This is an increase from 68.5% the week of June 17 and a big jump from the 22% of the West designated as D2 or higher during the third week of July last year.
The 11 states in the Western region, plus the Dakotas, are vital to the U.S. agricultural sector, supporting one-third, or $112 billion, of total U.S. agricultural production by value. This includes 55% of wheat, 57% of hay and over 70% of vegetables, fruits and tree nut production by value. Continued drought conditions put production of these commodities at risk, along with the stability of farms and ranches reliant on their crops and livestock for income.
In a recent AFBF survey assessing Western drought issues, over 75% of respondents rated reduction of planted acreage as prevalent or higher in their area, 57% reported switching planned planted crops due to drought conditions as prevalent or higher and 48% scored increased tilling under of crops as prevalent or higher. Though the least prevalent issue, increases of tilling under crops, varied greatly between states, with Nevada reporting tilling under as very prevalent and New Mexico scoring near zero. Several participants reported current and expected yields down by over 75% of their normal crop, with examples of drilled forage grass failing to germinate, alfalfa ceasing growth after a measly 4 inches, and plants being completely dried out from low humidity levels. Many producers of orchard trees have experienced frequent die-offs, with one respondent reporting, “Because of shortfalls in expected water deliveries from state and federal water projects, some farmers have bulldozed almond trees, others have pruned trees substantially, others have stripped fruit to save the trees.”
Given these stark conditions, many producers have transitioned acreage to more drought-resistant crop varieties such as Sudan grass, dry beans and rye. As one farmer described, “I am trying a new crop that is supposed to be more water effective and high tonnage - a product for biofuel research.” Unfortunately, permanent crop types such as those grown on trees and vines cannot be so easily swapped between planting seasons.
Unexpected and severe disasters, such as current widespread drought, have posed the ultimate test for traditional crop insurance programs. Losses that occur outside the scope of the specified terms of an insurance policy complicate farmers’ ability to qualify for indemnity payments, heightening the demand for ad hoc assistance programs such as the Wildfire and Hurricane Indemnity Program Plus (WHIP+). Supplemental and ad hoc programs designed to assist farmers and ranchers were particularly important in 2020 to counter impacts of the COVID-19 pandemic. With additional billions in losses related to weather and climate events, disaster aid for 2020 and 2021 is expected to drastically outpace total commodity insurance indemnity payouts.
Takeaway
Fall-planted crops could be replaced by second-crop, harvested cover crops or could be significantly reduced due to ongoing drought conditions already impacting spring-planted crops. As growers make decisions ahead of harvest time and anticipate what conditions will look like, the weather uncertainties may hold them back from taking certain planting risks. Other growers may have already used the opportunity to cash in on corn, soybeans or wheat, which are still rallying in the markets. Another factor that could impact fall planting decisions is USDA’s decision to reopen enrollment for the Conservation Reserve Program as the agency offered climate-smart practice incentives in a bid to enroll an additional 4 million acres into the program ahead of the July 23 deadline.
