Focus On Ag (1-30-23)

FOCUS ON AG
Written by Kent Thiesse

Farm Management Analyst and Senior Vice President, MinnStar Bank
January 30, 2023
SCO INSURANCE COVERAGE CONSIDERATIONS FOR 2023
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 (SCO) insurance coverage for corn in 2023. SCO insurance coverage
has been around for several years but has not been considered on a widespread basis due to the reduced potential
benefits from SCO coverage. However, that scenario may be different this year due to the price spread between
the potential Spring price for crop insurance coverage versus the Ag Risk Coverage (ARC) benchmark prices.
Details on SCO Insurance Coverage

SCO coverage is only available to producers that choose the Price Loss Coverage (PLC) farm program option for
the 2023 crop year and is not available for farmers that choose ARC coverage with county yields (ARC-CO) or
ARC coverage with farm yields (ARC-IC). The PLC farm program option 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 2023 revenue (county average yield times the 12-month
average price).
The deadline for 2023 farm program sign-up is March 15, 2023, which is the same as the enrollment deadline for
2023 crop insurance. As a result, farm operators will need to consider SCO insurance coverage at the same time
that they are finalizing their 2023 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
percent 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. This means that
SCO with a YP policy will be based on yield only and a RP policy will be revenue based (price and yield). For
example, a producer that purchases an 80% RP policy could 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 either “enterprise units” or “optional units”. Enterprise units combine all acres of a crop in a given
county into one crop insurance unit, while “optional units” allow producers to insure crops separately in each
individual township section. Enterprise units typically have considerably lower premium costs compared to
optional units for comparable RP policies. SCO insurance coverage is available for the same premium price with
either enterprise or optional units on a given farm unit.
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.
since they utilize 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.
It is possible for a producer to collect 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.
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 5-year national average
price (2017-2021) and the 12-month average price (9-01-23 to 8-31-24). SCO utilizes the 2023 crop insurance
Spring price, based on the average Chicago board of Trade (CBOT) prices in February of 2023 for December
corn futures, November soybean futures, and September wheat futures and the 2023 crop insurance harvest price,
based on the averages of the same CBOT futures months in October for corn and soybeans and August for spring
wheat.
Following is brief overview of how the SCO insurance coverage option and farm program options might
function for corn in 2023:
The 2023 BM price for corn is $3.98 per bushel, compared to the 2023 PLC reference price of $3.70 per bushel.
PLC payments are only made if the final MYA price is below $3.70 per bushel, while potential 2023 ARC-CO
payments will be dependent on both the final 2023 MYA price and the 2023 county average yields. At a final
2023 MYA price of $3.98 per bushel, the final 2023 county yield would need to be 15 percent or more below the
county BM yield to initiate a 2023 ARC-CO payment.
For example, if the county BM yield is 200 bu./A., the final 2023 county yield 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 2023 county average yield is the same as the county BM yield, the final 2023 MYA price
would need to decline below $3.43 per bushel in order to initiate an ARC-CO payment. At a $3.43 per bushel
final MYA price, there would be a $.27 per bushel PLC payment. The PLC program provides corn MYA price
protection from $3.70 down to $2.20 per bushel.
One option for a producer to consider for corn in 2023, might be to enroll in the PLC program for very low-price
protection, sign up for an 80% RP crop insurance coverage (either enterprise or optional units), and the sign up
for SCO coverage (6%). This is especially a favorable option for a producer that is more worried about price risk
than yield risk for the 2023 growing season. The SCO base price is the same as the crop insurance Spring price
(est. at $5.90/Bu. as of 2-01-23). Based on one estimate in a Southern Minnesota county, an 80% RP policy with
enterprise units with 6% SCO coverage would cost $3.50 per acre less total premium than an 85% RP policy. If
the final farm and county yield are close to the APH yields, there might be a slight advantage to the 6% SCO
coverage with 80% RP coverage versus the 85% RP coverage, while still maintaining the PLC protection through
the Summer of 2024.
The SCO insurance option seems to be best suited in situations where a farmer:
 Is more concerned with price decline that yield reductions for the 2023 growing season.
 Feels that there is greater chance for county yield reductions in 2023 than on their own farm units.
 Wants to maintain good insurance coverage (86%) at a slightly reduced premium cost.
 Already planned to sign-up for the PLC farm program option (required for SCO insurance coverage).
Farmers should contact their crop insurance agent for details and spreadsheets on crop insurance and SCO
coverage. Kent Thiesse, Farm Management Analyst, has prepared two information sheets titled “2023 Farm
Program Decision Cheat Sheet” and “2023 Crop Insurance Decisions” To request a free copy or either, send
an e-mail to: kent.thiesse@minnstarbank.com. Other good farm program and crop insurance resources include:
 U of Illinois FarmDoc website --- 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/
******************************************************************************************
Note --- For additional information contact Kent Thiesse, Farm Management Analyst and Sr. Vice President,
MinnStar Bank, Lake Crystal, MN. (Phone --- (507) 381-7960)
E-mail --- kent.thiesse@minnstarbank.com) Web Site --- http://www.minnstarbank.com/

Focus On Ag (1-30-23)

Uploaded by

Copyright:

Available Formats

Focus On Ag (1-30-23)

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Focus On Ag (1-30-23)

Uploaded by

Copyright:

Available Formats

FOCUS ON AG

Written by Kent Thiesse

Details on SCO Insurance Coverage

You might also like