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Prevented Plant Cash Flow Projections

by | Aug 6, 2019

Challenging production years lead to abnormally high levels of prevented plant acres.  When this occurs, many revisit cash flow projections completed earlier in the year to consider the impact of prevented plant acres, including the addition of cover crop plantings.  The following provides recommendations and considerations when working through cash flow projection updates for prevented plantings.

Prevent Plant Acres

One of the key components for prevented plant acres, especially when cover crops are planted for intended harvest, is getting the number of acres correct in the cash flow projection.  Prevented planting can be selected as a Crop in the cash flow Crop Plan data entry page, as has been done below.  This process is applicable for both Annual and Monthly types of cash flow projections.

In this example, the Prevent Plant acres have been entered in the Crop Plan to account for all acres. The crop insurance payment per acre can be entered as the yield for ease of calculation.  Another alternative is to manually calculate the income and enter it in Other Cash Flows (see below). If a cover crop is planted for harvest, Prevented Planting crop acres are Double Cropped, meaning these acres will not be counted as additional acres in the total crop acre count for the projection. In our example, Rye Silage is planted as a cover crop on the prevented plant acres.  This crop is intended to be harvested for feed purposes later in the year.  Therefore, capturing the intended production of these cover crop acres is an important component of the projection.  These acres are not designated as double crop acres, meaning they contribute to the total crop acres of this farming operation.  Within Crop Plan data entry, also consider the impact of prevented plant acres on the original crop plan.  What acres originally planned for production need to be reduced because of the prevented plant situation?  Also, was the original Crop Plan modified with a different crop mix because of the delayed planting situation? 

Prevent Plant Income

If entered as yield in the Crop Plan, the income expected from crop insurance for the prevented plant acres is entered in the Prevented Planting Crop Inventory page.  This crop inventory page is automatically generated from Crop Plan data entry.  The “production” is sold at a $1 value here. This brings the prevented planting income into the projection, as seen below. 


If other sources of income, say EQIP funds, will be received on prevented planting acres, the income is entered in Other Cash Flows data entry for annual and monthly types of cash flow projections.  This, of course, can be entered in detail to further notate the particulars of the income received.  In our example, EQIP funds have been entered as an Other Government Payment cash inflow.  If preferred, prevented planting funds can be entered directly as an Other Cash Flow.  If income is entered as Crop Insurance Income here Prevented Planting acres are optional in the Crop Plan.

Of course, if an existing cash flow projection is being updated to reflect prevented plant acres, operating expenses may also need to be modified.  Consideration should be given to both direct and overhead expenses related to the prevented plant acres.

Budgets

When a monthly cash flow projection with crop and livestock budgets is prepared and needs to include prevented plant acres, this inclusion can be accomplished in the crop budgets.  Then the appropriate Crop Plan is designated in the cash flow projection.

Here are the updated crop budget examples for our prevented planting acres and the cover crop. 

In this example, the Prevented Planting budget is designated as double crop and the income information is included in the budget details.  The expected insurance payment per acre is included as the yield, with a price entry of 1.  In addition, the EQIP payment related to these acres is included as Miscellaneous Income in the budget, again on a per acre basis.  When Prevented Planting acres are included in a monthly cash flow projection utilizing this set of budgets, these income sources are automatically included as the appropriate levels.  Like the previous example, the “production” on Prevented Planting acres will be sold in Prevented Planting Crop Sales data entry.  Use a price of $1 to include the prevented planting insurance income here.  The miscellaneous income from EQIP will automatically be included and can be viewed as miscellaneous crop income in the cash flow projection output.  An alternative would be to include these payments in Other Cash Flows, as in the previous example.   

Secondly, these budgets include a cover crop of rye silage.  This crop is intended for harvest, so not only are the expected direct expenses included in the budget for this cover crop planting, but the production is as well.  Again, selecting this budget and entering the appropriate number of acres in the cash flow projection will include the production and appropriate direct expenses.  Any other related operating expenses (fuel, repairs, etc) will be entered directly in the cash flow projection.

As shown above, the Crop Plan data entry in a cash flow projection with crop and livestock budgets is modified to include the appropriate number of prevented plant and cover crop acres.  In addition, the other crop acres may need to be updated to reflect the prevented plan situation.

Here, the total acre count will be correct, as our prevented planting acres were designated as double crop.  In addition, the proper production, income, and direct expenses will be included in the projection.  As stated before, related operating expenses will need to be reviewed and potentially modified.

Summary

Prevented plant acres are (hopefully) a sporadic occurrence for farming operations.  The FINPACK Team hopes these considerations and recommendations help make updating cash flow projections easier to reflect the actual situation for the production year.

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Pauline Van Nurden joined the FINPACK Team as an Economist in 2017.

Prior to joining the FINPACK Team, she worked as a lender. This provides her valuable industry experience and knowledge in her work with FINAPCK. Pauline holds a Master’s Degree in Agricultural Education and Bachelor’s Degree in Applied Economics, both from the University of Minnesota.

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