Crop insurance and tax considerations for when extreme weather impacts your crops
Heavy rain can delay or prevent planting or drown out already planted crops in farm fields.
USDA's Risk Management Agency (RMA) defines prevented planting as "a failure to plant an insured crop with the proper equipment by the final planting date designated in the insurance policy's actuarial documents or during the late planting period, if applicable, due to an insured cause of loss that is general to the surrounding area and that prevents other producers from planting acreage with similar characteristics."
If farmers have federal crop insurance and have not been able to plant by a given crop's final planting date or have drowned out areas in fields, they do have options.
- For most of Minnesota, the final planting date for corn is May 31. For northern counties, it is May 25.
- The final planting date for soybeans in Minnesota is June 10.
- The late planting period extends for 25 days after the crop's final planting date.
There are earlier dates for northern Minnesota counties:
- Final planting date for corn is May 25.
- Final planting date for soybeans is June 10.
- The late planting period runs from May 26 to June 19 for corn and June 11 to July 5 for soybeans.
- Northern counties include Aitkin, Beltrami, Carlton, Cass, Clearwater, Hubbard, Itasca, Kittson, Koochiching, Lake of the Woods, Mahnomen, Marshall, Norman, Pennington, Polk, Red Lake, Roseau and St. Louis.
Additional RMA information on final planting dates for specific crops throughout Minnesota and other crop insurance information can be found on the USDA Risk Management Agency website.
Eligibility for a prevented planting payment is determined on a case-by-case basis. An insured cause of loss must have occurred within the insurance period on eligible acreage. To be eligible, acreage must be normally physically available for planting, must have been planted in at least 1 of the 4 most recent years, and must meet all other applicable policy provisions.
In order to be eligible for a prevented planting payment, the area that was prevented from being planted must be at least the lesser of 20 acres or 20% of the insurable crop acres in the unit. The acreage that was prevented from being planted does not need to be contiguous.
The prevented planting guarantee for soybeans is 60% and for corn is 55% of the production guarantee for timely planted acreage (higher payment guarantees are available if purchased by sales closing date, subject to certain provisions). You can find more information on the RMA website.
For both yield and revenue protection, prevented planting payments are based upon projected price. There is no prevented planting coverage for Group Risk Plan, Group Risk Income Protection, or for policies insured at the Catastrophic Risk Protection coverage level.
Notice of prevented planting
Farmers are required to provide a notice that they are prevented from planting an insured crop. The notice has to be given within 72 hours:
- After the final planting date, if you do not intend to plant the insured crop during the late planting period or if a late planting period is not available; OR
- During the late planting period if you determine that you will not be able to plant the insured crop.
If a farmer is prevented from planting by the final planting date and meets all the criteria of their insurance policy, these choices are available:
Plant the insured crop during the late planting period, if applicable. The late planting period is generally 25 days after the final planting date but varies by crop and area of the state, as specified in the insurance policy. For most crops, the timely planted production guarantee is reduced one percent per day for each day planting is delayed after the final planting date. (Note: planting corn after June 10 is not recommended due to potential frost before harvest).
Example: A farm in Minnesota has an Actual Production History corn yield of 180 bu./ acre and elected a 75% coverage and chose the Crop Revenue Coverage. Their guarantee would be: 180 x 75% = 135 x $5.90 = $796.50 per acre. The farm has 200 acres of insured corn. The farm plants 150 acres before May 31 and 50 acres are planted on June 5, five days after the final planting date for southern Minnesota. For the 150 acres planted on time, the total revenue guarantee would be $119,475 (150 acres * $796.50 at 100%). The 50 late planted acres have a total revenue guarantee of $37,834 (50 acres * $796.50 at .95%). The average guarantee per acre is $786.55 ($119,475 + $37,834 = $157,309/200 acres).
Plant a second crop
Plant a different crop before the end of the late planting period. The field must first be released by the insurance provider. The second crop receives full insurance coverage as if it were the original crop. Coverage for the first crop is terminated. Coverage on soybeans will be reduced if planted after June 10.
Example: A farm in Minnesota has 200 acres of corn with a guarantee of $796.50 per acre, the same as the previous example. They plant 150 acres of corn on May 15 and wet conditions prevent them from planting the remaining 50 acres. They work with their insurance agent to switch the remaining 50 acres to soybeans. These acres are now insured for soybean production and the farmer plants soybeans on June 4.
Plant after the late planting period
Plant the insured crop after the late planting period (or after the final planting date if a late planting period is not available), in which case the insurance guarantee will be the same as the insurance guarantee provided for prevented planting coverage, which is 60% for soybeans and 55% for corn. Planting a second crop after the late planting period will result in a payment of 35% of the prevent plant indemnity. Farmers must insure and pay the premium on the second crop to receive the 35% payment. Haying or grazing cover crops before November 1 is considered planting a second crop.
Example: A farm in Minnesota has 200 acres of corn with a guarantee of $796.50 per acre. They plant 150 acres on time and with the remaining 50 acres, they plant cover crops that are grazed in August. The prevent plant payment for the 50 grazed acres is $0278.78 per acre ($796.5 x 35% of the guarantee).
Leave the ground idle or plant cover crops
Leave the acreage idle (black dirt) and receive a full prevented planting payment. Conservation improvements are allowed. Farmers can also choose to plant a cover crop and receive a full prevented planting payment (but do not hay or graze this cover crop before November 1 or otherwise harvest it at any time). Discuss this option carefully with your crop insurance provider.
Example: A farm in Minnesota has 200 acres of corn with a guarantee of $796.5 per acre. They plant 150 acres on time and the remaining 50 acres are not planted by the final planting date. The farmer leaves the acres idle and receives the full payment of $796.5 per acre.
Prevented planting coverage provides a payment to growers when they are unable to plant their crops due to an insurable cause. Perils covered are weather-related and include drought. Prevented planting coverage for the same insured cause of loss event can continue up to two years. Acreage prevented from being planted must remain idle or be planted to a cover crop (not intended to be hayed, grazed or otherwise harvested or is hayed or grazed on or after November 1 of the current crop year) to be eligible for 100% of the applicable prevented planting payment.
Payment reductions may not apply
If you meet the double-cropping requirements of your policy, the 65% payment reduction does not apply to a prevented planting payment for the first insured crop when:
- A second crop is planted; OR
- A cover crop is hayed, grazed or otherwise harvested.
The double-cropping requirements specified in the policy are:
- The practice of planting two or more crops for harvest in the same year on the same acreage is generally recognized by agricultural experts (including organic agricultural experts) for the area;
- The second or additional crops are customarily planted after the first insured crop for harvest on the same acreage in the same year in the area;
- Additional coverage insurance offered under the authority of the Federal Crop Insurance Act is available in the county on the two or more crops that are double-cropped; and
- You provide records showing the number of acres double-cropped in 2 of the last 4 years that the first insured crop was planted.
How to proceed
The first step is to contact your crop insurance agent and review your policy and options before making a decision.
Keep good records from the beginning. Good documentation is key to receiving prevented planting payments. Work with your crop insurance agent to determine the documentation needed.
- Farmers and their advisers can use a worksheet developed by Iowa State University and adapted for Minnesota by Robert Craven and Kent Olson, U of M Extension economists, to evaluate their options when prevented from planting. The worksheet also helps in the evaluation of whether to replant or not. The worksheet template is available online (XLSX). Click the download icon in the upper right corner to edit the worksheet in Excel.
- Additional information and details regarding federal crop insurance rules and guidelines can be found on USDA's RMA website.
- For agronomic information related to crops, late planting and the effect on yields, late planting rates and maturities, cover crops, etc., visit our crop production section.
Any crop insurance proceeds you receive need to be included as income on your tax return. You generally include that income in the year received. Crop insurance includes the crop disaster payments received from the federal government as the result of destruction or damage to crops, or the inability to plant crops because of drought, flood or any other natural disaster.
You can postpone reporting crop insurance proceeds as income until the following year the damage occurred if you meet all of the following conditions:
- You use the cash method of accounting;
- You receive the crop insurance proceeds in the same year the crops are damaged; AND
- You can show that under normal business practice you would have included income from the damaged crops in any tax year following the year the damage occurred.
Typically, deferral of crop insurance proceeds is considered an “all or none” option. For example, if a producer receives payment for prevented plant on 40 acres of corn and also receives payment for hail damage to a separate 80 acres of corn, all crop insurance proceeds must be either deferred or kept in the same tax year as the loss.
Crop insurance payments received as a result of crop damage or destruction are eligible for deferral. Payments from revenue policies are not eligible for deferral. An insurance payment received from a prevented planting policy does qualify for crop insurance deferral (assuming the taxpayer meets all other requirements for deferral).
Note: This information is educational only and is not intended to be tax, legal or financial advice. For questions specific to your farm business or individual situation, consult with your crop insurance agent and tax preparer.
This article is offered as educational information only and is not intended to be tax, legal or financial advice. For questions specific to your farm business or individual situation, consult with your crop insurance agent and tax preparer.
Reviewed in 2022