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As has often been said with agriculture, “every year is different”, and quite often decisions for the current crop year are based on what has happened in the past year or two. previous. This could be the scenario in some cases when considering Supplemental Coverage Option (SCO) insurance coverage for corn in 2023. SCO insurance coverage has been around for several years but has not been considered as a widespread due to the reduced potential benefits of SCO coverage. . However, this scenario could be different this year due to the price gap between the potential spring price for crop insurance coverage and the benchmark prices for agricultural risk coverage (ARC).
SCO Insurance Coverage Details
SCO coverage is only available to growers who choose the Price Loss Coverage (PLC) crop program option for the 2023 crop year and is not available to farmers who choose ARC coverage with yields. coverage (ARC-CO) or ARC coverage with crop yields (ARC-IC). The PLC Farm Program option is price only, and a crop’s 12-month average price must fall below pre-established benchmark prices in order to earn a Farm Program payment. Payout calculations for ARC-CO program calculations are based on a predefined Benchmark (BM) review (BM price and average county yield) and 2023 end revenue (average county yield multiplied by average price over 12 month).
The 2023 Farm Program enrollment deadline is March 15, 2023, which is the same as the 2023 Crop Insurance enrollment deadline. Therefore, farmers will need to consider SCO insurance coverage in the same time they finalize their 2023 farm program choice. The federal government subsidizes 65% of the premium for SCO coverage, so farm-level premiums are quite reasonable, helping to make SCO an option viable for producers who choose the PLC agricultural program option.
SCO allows producers to purchase additional crop insurance coverage at the county level up to a maximum of 86% on top of the underlying crop insurance policy. SCO insurance coverage is available for Revenue Protection (RP) or Yield Protection (YP) policies and will follow the underlying policy. This means that SCO with a YP policy will be yield based only and an RP policy will be revenue based (price and yield). For example, a producer purchasing an 80% RP policy could purchase an additional 6% SCO coverage with revenue protection.
The most popular crop insurance coverage for corn and soybean growers in the Midwest is some type of RP insurance policy with “enterprise units” or “optional units.” Corporate units combine all acres of a crop in a given county into a single crop insurance unit, while “optional units” allow producers to insure crops separately in each section of township. Corporate units generally have significantly lower premium costs than optional units for comparable RP policies. SCO insurance coverage is available for the same premium price with corporate or optional units on a given farm unit.
The SCO is a county revenue-based insurance product that is somewhat similar to the area risk protection crop insurance products that are available. The calculations for the SCO work very similarly to RP insurance policies. since they use the same basic crop insurance price and the same crop price. The biggest difference between SCO and most RP insurance policies is that SCO uses county-level average yields, rather than farm-level APH yields that are used for most RP and YP policies. Therefore, SCO and RP insurance policies may yield different results.
It is possible for a producer to collect on an individual RP font, but not to collect on an SCO font, or vice versa. For example, a grower with an 80% RP policy may have a loss that qualifies for an insurance payout on a farm unit, while the county as a whole may not meet the threshold to qualify. to an SCO payment. It might also be possible to collect an SCO payment for lost revenue at the county level, without being eligible for an RP insurance payout at the farm level.
SCO insurance coverage will use county yields that are very similar to ARC-CO yield, since both programs use USDA Risk Management Agency (RMA) yield data for calculations. The biggest difference in the calculations between ARC-CO and SCO is that ARC-CO uses the BM price, which is based on the national 5-year average price (2017-2021) and the 12-month average price (9-01-23 at 8 -31-24). SCO uses the Spring 2023 Crop Insurance price, based on Chicago Board of Trade (CBOT) average prices in February 2023 for December corn futures, November soybeans futures and September wheat futures and the price of the 2023 crop insurance crop, based on the averages of the same months CBOT futures in October for corn and soybeans and August for spring wheat.
Here’s a quick look at how the SCO insurance coverage option and crop program options might work for corn in 2023:
The BM 2023 corn price is $3.98 per bushel, compared to the PLC 2023 benchmark price of $3.70 per bushel. PLC payments are only made if the final MYA price is less than $3.70 a bushel, while potential 2023 ARC-CO payments will depend on both the final 2023 MYA price and average county yields in 2023. a 2023 MYA final price of $3.98 per bushel, the county’s final yield in 2023 would need to be 15% or more below the county’s BM yield to initiate an ARC-CO payout in 2023.
For example, if the county’s BM yield is 200 bu./A., the county’s final yield in 2023 would need to be 170 bushels per acre or less to initiate a 2023 ARC-CO payment. Another way to look at the ARC-CO’s decision for corn is to consider that if the county’s final average yield in 2023 is the same as the county’s BM yield, the final MYA price in 2023 should fall below $3.43 per bushel in order to initiate an ARC-CO Payment. At a final MYA price of $3.43 per bushel, there would be a PLC payment of $0.27 per bushel. The PLC program offers corn MYA price protection from $3.70 to $2.20 a bushel.
One option a grower might consider for corn in 2023 might be to enroll in the PLC program for ultra-low price protection, purchase 80% RP crop insurance coverage (corporate or optional units) and sign up for SCO Coverage (6%). It is especially a favorable option for a grower who is more concerned about price risk than yield risk for the 2023 growing season. The base price of SCO is the same as the spring price of insurance -harvest (estimated at $5.90/bu. as of 01-23-23). Based on an estimate in a southern Minnesota county, an 80% PR policy with enterprise units with 6% SCO coverage would cost $3.50 per acre of total premium less than a 85% PR policy. If the final farm and county yield is close to the APH yields, there might be a slight advantage to the 6% SCO coverage with 80% RP coverage over the 85% RP coverage, while maintaining PLC protection until summer 2024.
The SCO insurance option seems best suited in situations where a farmer:
Is more concerned about lower prices than yield reductions for the 2023 growing season.
Believes there is a greater chance of reducing the county’s yield in 2023 than on their own farm units.
Wants to maintain good insurance coverage (86%) at a slightly reduced premium cost.
Already planning to purchase the PLC Farm Program option (required for SCO insurance coverage).
Farmers should contact their crop insurance agent for details and worksheets on crop insurance and SCO coverage. I have prepared two fact sheets titled “2023 Farm Program Decision Cheat Sheet” and “2023 Crop Insurance Decisions”. To request a free copy, email [email protected] Here are some other good resources for agricultural programs and crop insurance:
University of Illinois FarmDoc: https://farmdoc.illinois.edu/
Kansas State University: https://agmanager.info/
Iowa State University: https://www.extension.iastate.edu/agdm/
USDA Risk Management Agency (RMA): https://www.rma.usda.gov/
For more information, contact Kent Thiesse, Farm Management Analyst and Senior Vice President, MinnStar Bank, Lake Crystal, Minnesota at 507-381-7960 or [email protected] .
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