As has been often said with farming ... “every year is different,” and many times decisions for the current crop year are based on what happened in the previous year or two. That could be the scenario in some cases with considering Supplemental Coverage Option insurance coverage for corn in 2024. Supplemental insurance coverage has been around for several years but has not been considered on a widespread basis due to the reduced potential benefits. However, that scenario changed in 2023 due to the price spread between the potential spring price for crop insurance coverage versus the Ag Risk Coverage benchmark prices. Now, we need to look ahead to analyze potential Supplemental coverage for the 2024 crop year.
Details on Suppplemental Coverage Option
Supplemental Coverage Option is only available to producers that choose the Price Loss Coverage (PLC) farm program option for the 2024 crop year and is not available for farmers that choose ARC-CO farm program choice with county yields or the ARC-IC choice with farm-level yields. The PLC program is price only, and the 12-month average price for a crop needs to drop below pre-set reference prices in order to earn a farm program payment. The payment calculations for the ARC-CO program calculations are based on a pre-set benchmark (BM) revue (BM price and average county yield) and the final 2024 revenue (county average yield times the 12-month average price).
The deadline for 2024 farm program sign-up is March 15, 2024, which is the same as the enrollment deadline for 2024 crop insurance. As a result, farm operators will need to consider SCO insurance coverage at the same time that they are finalizing their 2024 farm program choice. The federal government subsidizes 65% of the premium for SCO coverage, so farm-level premiums are quite reasonable, which helps make SCO a viable option for producers that choose the PLC farm program option.
SCO allows producers to purchase additional county-level crop insurance coverage up to a maximum of 86% over and above the underlying crop insurance policy. SCO insurance coverage is available for both Revenue Protection (RP) or Yield Protection (YP) policies and will follow the underlying policy. For example, a producer that purchases an 80% RP policy could purchase an additional 6% SCO coverage. The most popular crop insurance coverage for Midwest corn and soybean producers is some type of RP insurance policy with either “enterprise units” or “optional units.”
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 SCO function very similarly to RP insurance policies. Utilizing the same crop insurance base price and harvest 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, the SCO and RP insurance policies may achieve different results.
SCO insurance coverage will use county yields that are very similar to the ARC-CO yield, since both programs utilize USDA Risk Management Agency (RMA) yield data for calculations. The biggest difference in the calculations between ARC-CO and SCO is that ARC-CO utilizes the BM price, based on five-year national average price (2018-2022) and the 12-month average price (9-01-24 to 8-31-25). SCO utilizes the 2024 crop insurance spring price, based on the average Chicago Board of Trade prices in February of 2024 for December corn futures, November soybean futures, and September wheat futures and the 2024 crop insurance harvest price, based on the averages of the same CBOT futures months in October for corn and soybeans and August for wheat.
It is possible for a producer to collect a payment on an individual RP policy, but not collect on a SCO policy, or vice versa. For example, a producer with an 80% RP policy may have a loss that qualifies for an insurance indemnity payment on a farm unit, while the county as a whole may not meet the threshold to qualify for a SCO payment. It could also be possible to collect a SCO payment for a county-level revenue loss, while not qualifying for a RP insurance indemnity payment at the farm-level.
How the SCO insurance coverage option might function for corn in 2024
The 2024 BM price for corn is $4.85 per bushel, compared to the 2024 PLC reference price of $4.01 per bushel. PLC payments are only made if the final MYA price is below $4.01 per bushel, while potential 2024 ARC-CO payments will be dependent on both the final 2024 MYA price and the 2024 county average yields. At a final 2024 MYA price of $4.85 per bushel, the final 2024 county yield would need to be 15%or more below the county BM yield to initiate a 2024 ARC-CO payment.
For example, if the county BM yield is 200 bushels per acre, the final 2024 county yield would need to be 170 bushels per acre or lower to initiate a 2024 ARC-CO payment at $4.85 per bushel. Another way to look at the ARC-CO decision for corn is to consider that if the final 2024 county average yield is the same as the county BM yield, the final 2024 MYA price would need to decline below $4.16 per bushel to initiate an ARC-CO payment. If the 2024 county average yield is 5% above the county BM yield, the MYA price needs to drop below $3.97 per bushel to initiate an ARC-CO payment. At a $3.97 per bushel final MYA price, there would be a $.04 per bushel PLC payment. The PLC program provides corn MYA price protection from $4.01 down to $2.20 per bushel.
If a producer normally takes 75 or 80% or less crop insurance coverage for corn, an option to consider in 2024, might be to enroll in the PLC program for protection against very low 2024 MYA prices, sign up for a 75% or 80% RP crop insurance coverage (either enterprise or optional units) to save some premium costs, and then sign up for SCO coverage (11% or 6%). This is especially a favorable option for a producer that is more worried about price risk than yield risk for the 2024 growing season. The SCO base price is the same as the crop insurance spring price, which may end up close to the 2024 ARC-CO benchmark price of $4.85 per bushel. The combination of using SCO and PLC together allows producers some price and county yield protection from 75 or 80% up to 86%, keeps the crop insurance price and yield protection below 75 or 80%, while still maintaining the PLC catastrophic protection down to $2.20 per bushel through the Summer of 2025. This option does not fit every situation but may be an option for some farmers.
The SCO insurance option seems to be best suited in situations for farm operators:
- That normally enroll in 75 or 80% crop insurance coverage rather than 85%.
- That already planned to sign-up for the PLC farm program option (required for SCO insurance coverage).
- That are more concerned with price decline than yield reductions for the 2024 growing season.
- Want to maintain good insurance coverage (86%) at a slightly reduced premium cost.
Farmers should contact their crop insurance agent for details and spreadsheets on crop insurance and SCO coverage.
Source - https://www.agweek.com