By John Berry
Ag Marketing Educator
As we enhance our understanding of new risk management tools available to us out of the 2014 Farm Bill, the Supplemental Coverage Option (SCO) is a crop insurance product we should consider. With SCO the amount of protection and our premium cost is based on the underlying crop insurance policy coverage we choose. With lower underlying coverage, we’ll have greater SCO protection and a higher cost. With higher underlying coverage, we will have a lesser amount of SCO protection and a lower cost. SCO can be thought of as an endorsement to our individual plans of insurance as we must have yield protection or revenue protection crop insurance products in place in order to secure SCO coverage.
Additional features of SCO:
- Increases the level of coverage to 86% of our APH yield
- Covers all planted acreage of the crop
- Premium is subsidized at a standard 65%
- No coverage overlap with traditional crop insurance coverage
- Results in additional premium, and an additional administrative fee
The SCO Option is for farmers buying basic crop insurance who decide to increase or replace a portion of their individual coverage above 50% up to 86% of their APH yield. SCO protection is based on the producer’s crop insurance APH yield and the projected price, and reflects the type of protection (yield or revenue) of the underlying policy. Losses are triggered when the county actual yield drops more than 14% below the expected county yield. All planted acres are covered and there are no maximum payment limitations. Prevented planting coverage is unaffected by your SCO choice. Currently, farmers can insure up to 85% of the yield or expected revenue of their corn, but federal premium subsidies decrease at the higher coverage levels. SCO premiums are subsidized at 65%.
Indemnities will not be paid on acreage that has been determined to have been solely damaged by causes of loss not insured by the underlying policy. Although SCO is a product of the 2014 Farm Bill, it does not have a payment cap or base acre limitations, and there is no waiting for the national average farm price for the marketing year.
Exploring how SCO indemnity is calculated; we see payments begin if County revenue/yield is less than 86% of expected. Our indemnity is then based on our individual crop insurance product coverage with a maximum of 86% (SCO coverage) minus our individual crop insurance coverage level.
Crop insurance and NAP are the programs that provide the majority of crop protection. There are also three new supplemental programs that can provide substantial additional protection. They are Ag Risk Coverage (ARC), Price Loss Coverage (PLC), and the Supplemental Coverage Option SCO. Farmers that are experiencing difficulty making the ARC / PLC decisions may want to weigh how PLC and SCO coverage, along with their crop insurance policy, could be a risk management tool combination that meets the needs of their operation. Click here for the SCO Decision Tool.
Source:psu.edu