2023 SCO Insurance Coverage Considerations

As is often said in agriculture, “every year is different,” and many times decisions about the current crop year are based on what happened in the previous year or two. This could be the scenario in some cases with consideration of additional coverage option (SCO) insurance coverage for corn in 2023. SCO insurance coverage has been around for several years, but has not been widely considered due to the reduced potential benefits of SCO coverage. However, that scenario may be different this year due to the price spread between the potential spring crop insurance coverage price versus Ag Risk Coverage (ARC) reference prices.

Details of SCO insurance coverage

SCO coverage is only available to growers who choose the Agricultural Program Price Loss Coverage (PLC) option for the 2023 crop year and is not available to farmers who choose ARC Coverage with County Yields (ARC-CO) or ARC farm yield coverage (ARC -INTEGRAL SCHEME). The PLC farm program option is price only and the 12-month average crop price must fall below pre-set reference prices to earn a farm program payment. Payment calculations for the ARC-CO program calculations are based on a pre-set benchmark (BM) review (BM price and county average yield) and 2023 final revenue (county average yield times 12-month average cost ).

The 2023 farm program enrollment deadline is March 15, 2023, which is the same as the 2023 crop insurance enrollment deadline. As a result, farm operators will need to consider SCO insurance coverage in the same time they finalize their farm program selection for 2023. The federal government subsidizes 65% of the premium for SCO coverage, so premiums at the farm level are quite reasonable, helping to make SCO a viable option for growers who choose the option for a farm PLC program.

SCO allows growers to purchase additional crop insurance coverage at the county level up to a maximum of 86 percent above the basic crop insurance policy. SCO insurance cover is available for both Income Protection (RP) and Income Protection (YP) policies and will follow the underlying policy. This means that SCO with YP policy will be based on yield only and RP policy will be based on revenue (price and yield). For example, a producer who purchases an 80% RP policy can purchase an additional 6% SCO coverage with revenue protection.

The most popular crop insurance coverage for Midwest corn and soybean producers is some type of RP insurance policy with “enterprise units” or “option units.” Corporate units combine all crop acres in a county into one crop insurance unit, while “optional units” allow growers to insure crops separately in each county section. Corporate units generally have significantly lower premium costs than optional units for comparable RP policies. SCO insurance cover is available for the same premium price with corporate or optional units on a farm.

SCO is an insurance product based on county revenue that is somewhat similar to the crop protection insurance products available in the territory. SCO calculations function very similarly to RP insurance policies. as they use the same crop insurance base price and crop price. The biggest difference between SCO and most RP insurance policies is that SCO uses county-level average yields rather than the farm-level APH yields that are used for most RP and YP policies. As a result, SCO and RP insurance policies may achieve different results.

It is possible for a manufacturer to collect under an individual RP policy but not under an SCO policy or vice versa. For example, a grower with an 80% RP policy may have a loss that qualifies for a farm unit insurance benefit payment, while the county as a whole may not meet the threshold to qualify for SCO payment. It is also possible to collect the SCO payment for loss of income at the county level while not being eligible for the RP insurance benefit payment at the farm level.

SCO insurance coverage will use county yields that are very similar to ARC-CO yields because 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 based on the 5-year national average price (2017-2021) and the 12-month average price (9-01-23 to 8 -31-24). SCO uses the spring 2023 crop insurance price based on the February 2023 Chicago Board of Trade (CBOT) average prices for December corn futures, November soybean futures and September wheat futures and the insurance price of the 2023 crop based on averages of the same CBOT futures months in October for corn and soybeans and August for spring wheat.

The following is a brief overview of how the SCO insurance coverage option and farm program options may work for corn in 2023:

The 2023 BM price for corn is $3.98 per bushel, compared to the 2023 reference PLC price of $3.70 per bushel. PLC payments are made only if the final MYA price is below $3.70 per bushel, while potential 2023 ARC-CO payments will depend on both the final MYA price for 2023 and county average yields for 2023 At a 2023 MYA final price of $3.98 per bushel, the county’s 2023 final yield would need to be 15 percent or more below the county’s BM yield to initiate an ARC payment- CO for 2023

For example, if the county’s BM yield is 200 bu./A., the final county yield for 2023 would need to be 170 bushels per acre or lower to initiate a 2023 ARC-CO payment. Another way to look at the ARC-CO decision for corn is to consider that if the final average county yield for 2023 is the same as the county BM yield, the final 2023 MYA price would have to fall below $3, 43 per bushel to initiate ARC-CO payment. At a final price of $3.43 per bushel for MYA, there will be a $0.27 per bushel PLC payment. The PLC program provides MYA corn price protection from $3.70 to $2.20 per bushel.

One option for a grower to consider for corn in 2023 could be to enroll in the Very Low Price Protection PLC program, sign up for 80% RP crop insurance coverage (either plant or additional units) and register for SCO coverage (6%). This is a particularly favorable option for a grower who is more concerned about price risk than yield risk for the 2023 growing season. The SCO base price is the same as the spring crop insurance price (approximately $5.90/Bu .as of 2-01-23). Based on one assessment in a southern Minnesota county, an 80% RP policy with corporate units with 6% SCO coverage would cost $3.50 less per acre in total premium than an 85% RP policy. If final farm and county yields are close to APH yields, there may be a slight advantage for 6% SCO coverage with 80% RP coverage versus 85% RP coverage while maintaining PLC protection in the summer of 2024.

The SCO insurance option appears to be most appropriate in situations where a farmer:

  • He is more concerned about falling prices than a reduction in production for the 2023 growing season.
  • It believes that there is a greater chance of a decrease in production in the district in 2023 than in their own economic units.
  • Wants to maintain good insurance coverage (86%) with slightly reduced premium costs.
  • You are now scheduled to register for the PLC farm program option (required for SCO insurance coverage).

Farmers should contact their crop insurance agent for details and spreadsheets regarding crop insurance and SCO coverage. I have prepared two fact sheets titled “2023 Farm Program Decision Worksheet” and “2023 Crop Insurance Decisions”. To request a free copy, email [email protected] Other good agricultural crop insurance programs and resources include:

  • 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 additional information, contact Kent Thiesse, farm management analyst and senior vice president, MinnStar Bank, Lake Crystal, Minn., at 507-381-7960 or [email protected].

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