Ep. 60 Prevented Planting: Historical Impacts to Indemnities and Acreage

00;00;00;01 – 00;00;27;03
Dr. Ryan Loy
Rice Prevent Plant acres in Arkansas are coming in at over a half a million. Corn and rice incur the most PP losses since 2013, and Arkansas is facing the third highest prevent plant acreage ever, at nearly 1 million acres. That, and much more on this episode of Morning Coffee and Ag Markets.

00;00;27;06 – 00;00;28;15
Dr. Ryan Loy
Hunter, how are you doing?

00;00;28;17 – 00;00;30;14
Dr. Hunter Biram
I’m good, Ryan, how are you?

00;00;30;17 – 00;00;39;15
Dr. Ryan Loy
Very good. And I guess that’s the first thing I did, was forget to introduce myself. I’m Ryan Loy, and with me in the studio today, actually, our new studio, is Dr. Hunter Biram.

00;00;39;17 – 00;00;47;10
Dr. Hunter Biram
I’m really excited. Yeah, we’re sitting in here. It’s not fully completed, but it’s completely enough to where we’re like, you know what? Let’s just go ahead and record an episode in the new room. So.

00;00;47;10 – 00;00;55;23
Dr. Ryan Loy
Yeah, I’m excited, man. It’s, it’s really great. And kind of like how you said, we just kind of have some elbow room, some freedom. And we just have our own studio now, so it’s nice.

00;00;55;23 – 00;00;56;14
Dr. Hunter Biram
It just feels good.

00;00;56;28 – 00;00;57;16
Dr. Ryan Loy
It does.

00;00;57;18 – 00;01;06;26
Dr. Hunter Biram
It does feel good. And listen, I’m not knocking where we were, but it was kind of cramped. I mean, because it was it was pretty cramped. But now we have a much larger space and, it just feels good.

00;01;06;29 – 00;01;23;25
Dr. Ryan Loy
I think for us too. You know, we’ve had a vision for what we wanted, this whole, you know, program to look like. And this is part of it kind of coming together for us. And so it’s really exciting to see. And we don’t have video in here yet. We are intending on doing it here eventually. But for those who are listening, we have a nice big TV in here.

00;01;23;25 – 00;01;30;14
Dr. Ryan Loy
And you know, right now, a table and chairs. We got more on the way. And so it’s just a nice little spot to set up and record an episode.

00;01;30;18 – 00;01;44;14
Dr. Hunter Biram
Yeah. The hope is that we will start to show some of the figures that we talk about, so that you can actually see this. I know there’s some features, like on Spotify where you can actually follow with a video or do audio only. And so we’re hoping to kind of move into that space. So y’all stay tuned.

00;01;44;15 – 00;02;06;20
Dr. Ryan Loy
That’s right. And hopefully you’ll see us more on your YouTube algorithms and stuff like that from doing so. And we’re hoping to get out there and share the message in terms of what’s going on in the ag economy. So today, Hunter, I know that we are kind of following up as a part two for an episode that we had done, maybe about a month ago now, maybe a little bit more, talking about Prevented Plant, and earlier I said PP, Prevent Plant, PP, those are interchangeable.

00;02;06;20 – 00;02;17;28
Dr. Ryan Loy
And so today we’re really going to be talking about, what are the historical impacts to indemnities and acreage? And what are those implications from preventing planting coverage and farmers taking that coverage, overall?

00;02;18;12 – 00;02;30;06
Dr. Hunter Biram
I’m excited to dive right in. Yeah, I mean, we’ve got a lot of data here in front of us, a lot of numbers. We got dollars, we got acres, we got RMA data, we got FSA data. We’re taking a multifaceted approach to this issue.

00;02;30;09 – 00;02;50;11
Dr. Ryan Loy
I love it, I absolutely love it. So just to kind of kick it off for those who have maybe read the newsletter or I’ve seen some of your presentations before, you know, since 2019, the Prevent Plant, or PP, losses have largely overtaken other loss types in Arkansas, and total losses in this case have often exceeded the total premium.

00;02;50;13 – 00;03;15;01
Dr. Ryan Loy
So what kind of structural shifts? You know, maybe something is like a weather pattern, you know, planting windows or programs design, best explain that break from the past? And really what does it imply for, you know, the soundness going forward of the program? And if I may ask one more question, on top of that, can you go into a little bit of detail in terms of total losses exceeding the premium and what that really means in terms of actuarially fair?

00;03;15;03 – 00;03;36;19
Dr. Hunter Biram
Yeah. So I’ll, I’ll start by just, talking about how really up until about 2011, Prevent Plant losses really weren’t a thing. I mean, the program’s been around since 1994, so, I mean, it’s been around for a long time. And as we talked in the last segment of this topic, it’s a, coverage that is embedded in, like all MPCI, our multi-peril crop insurance policies.

00;03;36;19 – 00;03;56;26
Dr. Hunter Biram
So like your YP or your RP’s, like, you’re not going to pay separate for, unless you do buyout, which we talked about that. So the PP program and the coverage is embedded in the premium or the price of the insurance. And so what you see, I mean, for the most part leading up until I think 2011 is there’s a pretty stark difference.

00;03;56;26 – 00;04;17;11
Dr. Hunter Biram
2008 shows a pretty big difference. And it kind of stands out. You pretty much see how the losses are pretty close to equating to the premiums. It’s not perfect, but I mean, it is pretty close and it doesn’t really seem to blow up, and then we don’t notice it that much until 2019, where clearly there are far more losses reported in the form of Prevented Planting, production-type losses and replant losses.

00;04;17;11 – 00;04;39;27
Dr. Hunter Biram
And that’s in 2019. So let me do a little primer on that, then. So when a crop insurance adjuster pretty much comes on to a farmers place, they’re going to record a loss as prevent plant or maybe a production style or production-type loss like excess rainfall, moisture, tornadoes, wind, hurricanes, tropical storms, drought, you name it. Like, there’s gonna be a listed cause of loss.

00;04;39;27 – 00;05;00;18
Dr. Hunter Biram
And so if it’s not designated prevented planning, it’s pretty much designated as production. There’s also replant losses. And so there are three main types of losses that go into a premium for insurance. And so, back to where we were, then. What we’ve seen is that since about 2011, Prevent Plant has really taken off in terms of what portion of that premium is covering Prevent Plant losses.

00;05;00;18 – 00;05;25;17
Dr. Hunter Biram
And so, then, on to your other question about the actuarial soundness. So one measure of actuarial soundness is the loss ratio, which is the indemnity divided by the premium or the ratio of the money paid out to insured divided by the money received by the insurance company. And so, RMA operates and is legislatively mandated to follow an actuarily fair pricing scheme, which means it’s pretty much a breakeven

00;05;25;23 – 00;05;38;20
Dr. Hunter Biram
business where the indemnity is equal to the premiums. However, introduce the premium subsidy and then farmers face a lower premium. Now that doesn’t mean that it’s not an actuarily fair program. What that means is that the farmers are going to pay a part of that premium, and the federal government is going to pay the other part of that premium.

00;05;38;21 – 00;05;54;02
Dr. Hunter Biram
It’s ultimately still looking for a loss ratio of one. All right. So what I’ve got in the newsletter is showing a graph of these losses versus the total premiums. That includes the premium that the government pays to the insurance company as well. So this is like the full on actuarially fair premium. So in theory these bars should be side by side.

00;05;54;03 – 00;06;12;20
Dr. Hunter Biram
But you see in 2019 that, boom, I mean, you’re looking at probably a loss ratio of two there. I didn’t get it exactly, but looks pretty close to me. You’re looking at something that almost looks like two again in 2020. 2021 almost looks like a loss ratio of one. It’s higher than 1 in ‘22. It’s actually less than 1 in ’23, which I find interesting, and I haven’t studied it that much.

00;06;12;20 – 00;06;31;17
Dr. Hunter Biram
‘24 is greater than one. Then ’25, it’s actually less than one right now, but I don’t think that RMA has all their data put together yet. And so I just have a hard time believing that we’re going to have fewer prevent plant losses than we did pretty much in any year prior to 2019. That just seems like, I mean, given what we’ve heard around the state, I just don’t think that that’s true yet.

00;06;31;17 – 00;06;38;24
Dr. Hunter Biram
So, I waited as long as I could to, to run this. And, hopefully we’ll find more data and get more data in the coming weeks.

00;06;38;27 – 00;07;01;24
Dr. Ryan Loy
Absolutely. And even just looking at this graph here, it’s pretty staggering in terms of the shift in how quick it happened to go from, you know, those indemnities really outweigh the premiums. And especially, like you talked about 2019, I mean, that is really staggering. And so it’s almost really interesting to see that the production losses, while they do go up and down, they kind of have a pattern to them of ebbing and flowing, you know.

00;07;01;24 – 00;07;10;17
Dr. Ryan Loy
But these prevent plant losses. They seem to have absolutely skyrocketed. And it’s really interesting to see, as somebody who doesn’t work in this space all the time just to see how this works.

00;07;10;17 – 00;07;30;28
Dr. Hunter Biram
Yeah. I mean, 2019, just going back to that, I know that we’re in ‘25, but 2019 just really stands out. I mean, according to NOAA, there was about four inches of rain in March, about eight inches in April, roughly nine in May. So spring 2019 sums up to about 21 inches, thereabouts. But the normal rainfall in that window was about five inches, so it was about five inches more than normal.

00;07;31;01 – 00;07;32;29
Dr. Ryan Loy
It’s just too wet to plant at that time. Yep, that makes sense.

00;07;33;02 – 00;07;47;13
Dr. Hunter Biram
It was very wet and it continued to rain, I believe, throughout that season. So what do we see this year? So fast-forward to ‘25 so I bring up 2019, I’ll bring up ’25. Well, you know, we had about three months worth of rain about three days. Yeah. You know, we had the flood event that happened in early April.

00;07;47;13 – 00;08;05;09
Dr. Hunter Biram
First part of April where everything flooded. I mean, it was crazy. Everything was flooded. It wasn’t just farmland. It was everywhere. I remember driving on 67, which is called, I-57 now, but, 67, there in Cabot. They have, like, a baseball softball complex. And like, the water was above where that yellow fence guard is. Oh, yeah. Above the fence line.

00;08;05;09 – 00;08;07;05
Dr. Hunter Biram
The water, like, you could barely see that.

00;08;07;05 – 00;08;08;03
Dr. Ryan Loy
That’s incredible. Holy moly.

00;08;08;25 – 00;08;24;15
Dr. Hunter Biram
It was incredible. So there was a lot of rain. And the thing is, the water didn’t just go away. It took a long time for it to go away. And, it got really dry out this summer. Okay. We all know that. But still, it was so wet in the early part of the year. It pushed back the planting window this year.

00;08;24;15 – 00;08;41;27
Dr. Hunter Biram
And on top of that, we had these low crop prices. And so, a lot of folks, and we’re going to investigate this in another newsletter and podcast. But producers were asking, is it worth it for me to grow the crop or is it actually economical to Prevent Plant? Right. I mean, and people, that’s a genuine question. And I don’t think there’s anything wrong with thinking about that and talking about that.

00;08;42;08 – 00;08;46;05
Dr. Hunter Biram
in certain situations. Yeah. No, it actually could be. Now, do we want to make a habit of that?

00;08;46;09 – 00;08;46;26
Dr. Ryan Loy
Probably not.

00;08;46;26 – 00;09;02;28
Dr. Hunter Biram
No, no, no, no no, we do not want to make a habit of that. But it is a risk management tool. And so, I mean, if it’s really wet like it was this year, and then you’re like, man, my yield potential is already fallen ten, 20, 30%. I was already kind of behind the eight ball with like a normal yield potential.

00;09;02;28 – 00;09;13;15
Dr. Hunter Biram
Now I’ve lost that and crop prices have fallen so low. Should I even do anything with that this year or should I just Prevent Plant it? And so, for those who have had the acreage, it actually probably was a pretty good idea this year.

00;09;13;16 – 00;09;34;06
Dr. Ryan Loy
That’s right. And I think that that’s a very interesting viewpoint, too, that you bring up in terms of, you know, other years it may be these Prevent Plant losses are due to just extreme wetness or extreme dryness only in, you know, siloed. Whereas now it sounds like, well, yeah, you know, my ground is wet. I can PP it or I can wait a little bit longer, maybe in a different year, to plant it and still make some money.

00;09;34;08 – 00;09;50;29
Dr. Ryan Loy
But this year it almost seems like Prevent Plant makes sense to do without even planting everything. And that’s a really interesting viewpoint compared to other years. Well, Hunter, the other thing that I wanted to bring up to you is that, you know, on your other, figure in the newsletter, your breakdown, for folks who are reading the newsletter, we’re looking at the graph with the breakdown by commodity.

00;09;50;29 – 00;10;19;29
Dr. Ryan Loy
Your breakdown shows rice and corn bearing the biggest Prevent Plant losses in 2013, with a notable spike again in 2019. Just like we talked about before. Soybeans are also high in 2019 as well. So what crops specific or maybe other, you know, environmental factors make these commodities especially vulnerable, specifically in Arkansas? Right? I know that you and I were looking at some bankruptcy numbers, too, and Arkansas stood out, and we really couldn’t make heads or tails of why that was the case.

00;10;19;29 – 00;10;26;25
Dr. Ryan Loy
And is there something similar there, or is this like a, you know, what are these, you know, factors that are going into it and how producers have adjusted for it?

00;10;26;26 – 00;10;42;06
Dr. Hunter Biram
You know, the conversations that I’ve had, I’ve just heard folks talking about our soil. I mean, it is, heavy clay and it does retain water, and that’s what makes it really good for rice. And so because of that, it’s easy to retain water to flood, right? And we need to flood the rice, I mean, for many reasons.

00;10;42;06 – 00;10;55;13
Dr. Hunter Biram
And that’s beyond the scope of this podcast, but because it’s so good for flooding later in the year with the irrigation, that also means it’s good for flooding in the early part of the year when there’s a lot of rain that falls. So you got that to contend with. And what do you plant the earliest? Corn and rice.

00;10;55;16 – 00;11;13;26
Dr. Hunter Biram
So corn typically comes first, then rice follows soon after. And then you’re looking at, probably soybeans and cotton, as far as the order of operations here in terms of planting. So for those farms that are heavy rice, soybean rotation and maybe corn is thrown in there too, that’s where you’re gonna see most of this Prevent Plant happen, is where most of the rice and corn acreage is.

00;11;13;26 – 00;11;36;19
Dr. Ryan Loy
That’s a very interesting perspective, and it definitely makes sense in terms of why that happens and what the numbers we’re looking at here. One of the things that you’ve noted earlier, too, and you note in the newsletter, is that the 2025 figures and the data that you’re pulling in for 2025, it’s still being reported to the, you know, Risk Management Agency, RMA, or the Farm Service Agency, FSA. So taking these, you know, numbers that are new and not fully complete yet,

00;11;36;20 – 00;11;48;27
Dr. Ryan Loy
how do you communicate that uncertainty around these preliminary losses and acreage data to farmers, lenders, policymakers that we deal with every day without really kind of dulling the urgency that is getting to 2026?

00;11;48;27 – 00;12;09;24
Dr. Hunter Biram
Yeah, I think where I want to go next with that is the FSA acreage number. So, so far we’ve talked about Risk Management Agency. And that’s going to be indemnities and premiums and, you know, cause of loss data. But you know, I don’t know if we’re fully there with all those losses reported just yet and compiled. So I was like, well, let me go to FSA and just see, you know, I’ve talked with, some of our other specialists.

00;12;09;24 – 00;12;30;24
Dr. Hunter Biram
I know that they consult the FSA numbers quite a bit. The FSA numbers, I mean, we’re looking at the third highest, as you noted, is one of the main takeaways here, like the third highest Prevent Plant acreage reported by FSA since they’ve been able to report data since 2007. I’ve got 2009 through ‘25 in the newsletter, but ’07 and ‘08 are on the state level basis and this is all county level summed up.

00;12;30;24 – 00;12;54;29
Dr. Hunter Biram
So I just was like, well, I’ll go in there and I’ll look on individual basis. And so just know that since 2007, this is the third highest PP acreage reported by FSA. And we’re coming in, what, a little under 1 million acres, I think, across all the crops, with rice and corn, of course, leading the way. But soybeans showing quite an uptick at, you know, probably one of the second or third highest PP acreages across the same period, with the most being in 2019.

00;12;55;02 – 00;13;04;11
Dr. Ryan Loy
It’s really interesting to see that 2019 number was, that’s a brutal number. I mean, it really is. It stands out like a sore thumb on both of these graphs from different data sources, right? It’s very interesting.

00;13;04;11 – 00;13;21;02
Dr. Hunter Biram
Yeah. And to your point then, like, seeing how they both, ‘19 and even 2020, pops up on both graphs. I’m like, well, I mean, let’s just use some logic here. I mean, we got ’19 and ‘20 from FSA, and those are high. We got the RMA numbers and the indemnities are high, but the indemnities are low in ’25 for RMA,

00;13;21;02 – 00;13;43;06
Dr. Hunter Biram
but the acreage is higher than FSA, which, again, leads me to believe that we haven’t gotten everything yet. And I pulled the data as recent as I could from RMA. And so I think that there’s still numbers to be tallied, dollars to be tallied, in terms of what the indemnities would be. But I think, what’s, what’s wild to me is that, I think it’s almost like, it’s over a half a million acres for rice Prevent Plant this year.

00;13;43;07 – 00;13;50;29
Dr. Ryan Loy
That’s insane. That that really is. And that’s the combination? Is that just Prevent Plant, or is it a combination of all the, like the loss, amounts that could happen?

00;13;50;29 – 00;13;53;00
Dr. Hunter Biram
So the 520,000 – just Prevent Plant.

00;13;53;01 – 00;14;18;04
Dr. Ryan Loy
Wow. Yeah. That really is staggering. And again, like, you know, when you’re considering all of this and looking at the million of Prevent Plant acres for 2025 and the intentions for rice acreage around 1.8, you know, how should farmers and lenders interpret these signals for budgeting, basis risk? And really, you know, for preparing for next loan season, how should they interpret these numbers heading into that season?

00;14;18;04 – 00;14;45;03
Dr. Hunter Biram
Yeah, I think it just highlights how serious the economic conditions are. I mean, you know, we were talking about prices earlier, and then the yields also factor into this. I mean, revenue is a product of price and quantity. So price and yield. So on the price side of things where we’re seeing, I think it’s about a 20% decline in crop prices overall since about 2023, we’ve seen about 20% decline. Going off of your famous prices received versus prices paid indexes.

00;14;45;05 – 00;15;05;14
Dr. Hunter Biram
That’s, that’s what I’m referencing. I think it’s about 20% declines in 2023. So massive declines in price. But expenses have actually gone up, not by much since ‘23, but still, they’ve gone up. And at best, they remain just the same in the last… and that’s the best case scenario. But you see crop price fall. So I mean you’re looking at like a 24-25% gap between those two prices.

00;15;05;14 – 00;15;19;19
Dr. Hunter Biram
And so, I think this highlights some of that. I mean because again we talked earlier about, is it worth it to farm? I mean even… I think we had a farmer that we listened to at the field day recently and she was saying, listen, like, I’ve had to ask myself I know that my friends have, too,

00;15;19;23 – 00;15;36;00
Dr. Hunter Biram
is it worth it? Like, is this even worth it? In a year like this, that’s what just about everybody’s asking. I mean, I feel like we had to talk a little bit about the meeting that was in Northeast Arkansas at Brooklyn. You’re looking at between 400-500 people showed up at this meeting, and that’s not an exaggeration. You know, I’ve seen pictures.

00;15;36;00 – 00;15;56;03
Dr. Hunter Biram
I’ve heard testimony from it. I was a guest lecturer at an ag policy class at Arkansas State here this week, and there were four students from that class that went. And so, I got to hear from them, like what they saw, what they learned. And there wasn’t like any yelling or cussing, per se. But you know, emotions were high, emotions high. People are concerned.

00;15;56;05 – 00;16;14;28
Dr. Ryan Loy
And rightfully so. And it’s one of those things. And I’ve heard it repeated before and, and I think it’s always important to… I don’t think you can overstate this, that, you know, this is a time now where, you know, farmers have done everything right and they do everything right. Best marketers, best businessmen and women ever. And you get punished for it, right?

00;16;14;28 – 00;16;30;12
Dr. Ryan Loy
You know, nothing that is occurring right now, in my mind that I can see from an economic perspective is the fault of the farmer. I don’t, I really don’t think so. It is, you know, these, these third party events that happen that unfortunately farmers have to bear the, the main cost for, and this is what we’re seeing.

00;16;30;12 – 00;16;50;27
Dr. Ryan Loy
So I’m glad you brought that up. And it’s something that I mean, you know concerns both of us every day, right? So, you know, one of the things that, just to kind of wrap this up, Hunter, and I know this will be a little bit of a longer episode, but I think that this is a very important topic. In your figures and in your newsletter, you observed that, you know, the corn Prevent Plant acreage tends to really follow the rice, and we put that in quotes.

00;16;50;27 – 00;17;08;13
Dr. Ryan Loy
I’m doing air quotes right now, which it peaks for corn in 2020, 2019 and 2022. So what’s driving that correlation? Is it field conditions, rotations, the timing of inputs? And what management or insurance choices most effectively decouple those two trends, that correlation?

00;17;08;13 – 00;17;25;21
Dr. Hunter Biram
Yeah, I think I’m just going to go back to, the fact that corn and rice are planted the earliest. I think it just, I think it lends itself to say that it’s more likely that those crops, among the competing crops that we do grow, that those would be the ones to see the most Prevent Plant losses. It’s not that those farmers are just bad farmers, it’s just they’re planted earlier.

00;17;25;21 – 00;17;40;08
Dr. Hunter Biram
And because we do have a lot of ground that retains water really well and it’s good for flooding, good for flooding rice, things like that, but it’s also good for flooding in the early part of the season. So, you know, I think that’s going to be the main driver for corn and for rice. Of course, we’ll have to follow up with our agronomist friends.

00;17;40;08 – 00;17;45;09
Dr. Hunter Biram
But just in, you know, conversations that, that I’ve had with them, I mean, they would, they would most likely tell you the same thing.

00;17;45;11 – 00;17;56;07
Dr. Ryan Loy
Absolutely. Well, Hunter, I really appreciate all this insight that you’ve provided today. It’s always great insight. And, you know, I always learn a ton talking to you. And I know that our audience feels the same way. Any last thoughts?

00;17;56;09 – 00;18;26;01
Dr. Hunter Biram
All I’ve got to say is it’s been a pretty wild time. And you know, we’ve got, you’ve been covering bankruptcies and Brazil and trade and you know, I’ve been covering the Arkansas economy and general ag economy and the Mississippi River, now, and then Prevent Plant. And so it’s just, it’s a tumultuous time, and, you know, one farmer at that meeting was talking about going down the drain. And so, I hope that our listeners, are willing to, to follow us down the drain for, for a little bit, just to […] just to stay informed. I hope that they’re ready to swim.

00;18;26;01 – 00;18;30;10
Dr. Hunter Biram
But, but also hope that, we have listeners that are ready to pull people out of the water, too.

00;18;30;12 – 00;18;35;03
Dr. Ryan Loy
That’s right. Well, Hunter, thank you so much. Stay tuned for your market report. Bye bye, now.