As Winter Wheat Insurance Deadline Approaches, Art Barnaby suggests that producers consider SCO

The deadline to insure the 2015 winter wheat crop is Sept. 30, and as producers consider their coverage, they might also want to enroll in the Supplemental Coverage Option (SCO) made possible by the 2014 Farm Bill.

The SCO, according to the U.S. Department of Agriculture, is a new crop insurance option that provides additional coverage for a portion of a farmer’s underlying crop insurance policy deductible on a countywide plan. Farmers in nearly all Kansas counties would be eligible to enroll (see map for availability at http://www.rma.usda.gov/news/currentissues/farmbill/SCOwheatfilingdates.pdf).

Art Barnaby, risk management specialist for K-State Research and Extension, recommends that eligible producers add the SCO to their coverage, because they have the option to cancel it prior to the wheat insurance acreage reporting date at no cost.

“In the meantime over the next month, you’ll probably get more clarity on which Farm Service Agency (FSA) program you’re going to select, PLC (Price Loss Coverage) or ARC (Agricultural Risk Coverage),” he said. “It gives you more time to make the decision. From a farmer’s perspective, I would list (SCO) regardless of the coverage level I’m buying at, with the idea that I may decide to go ahead and cancel it later.”

The SCO begins to pay when county revenue falls below 86 percent of its expected level. The full amount of the SCO coverage is paid out when the county average revenue falls to the coverage level percent of the underlying policy.

Barnaby said as an example, consider that a producer buys 80 percent coverage in his or her underlying policy.

“Six percent of the expected revenue is covered (by the SCO), and on top of that, it’s not triggered by your individual loss,” he said. “It’s triggered only at the county level. If the county has a big enough loss, you could get a payment that is six points higher than what you’re getting from your individual coverage. On the other hand, you could have a total loss, and you would collect nothing from SCO, because the county didn’t trigger.”

If a producer chooses 70 percent coverage, he or she will have more coverage over the county yield trigger, he said, because that would be 86 percent down to 70 percent covered by the SCO.

Producers who sign up for the SCO might benefit from remaining enrolled if they have a low actual production history (APH) yield but think the county loss will likely be greater, Barnaby said. Producers will have until later this winter to decide if they want to enroll in PLC or ARC. If they decide to enroll in ARC for winter wheat, they are not eligible to be covered by the SCO.

“You can substitute for SCO by simply going to an enterprise unit and buying up on the coverage level,” Barnaby said. “You can buy an 80 percent enterprise unit for the same premium or less than you can buy 70 percent optional units in most counties and in most farm situations.”

If producers don’t cancel the SCO for their winter wheat before acreage reporting date and do sign up for ARC down the road, they will owe 20 percent of the SCO premium to cover administrative expenses.

For more information about the SCO, visit the USDA’s website (http://www.rma.usda.gov/news/currentissues/farmbill/2014NationalSupplementalCoverageOption.pdf). The USDA’s FSA also has more information online (http://www.fsa.usda.gov/FSA/webapp?area=home&subject=arpl&topic=landing) about PLC and ARC.

Sidebar: Excel-Based Farm Program Decision Aid Available

 A computer decision aid released this week is meant to help farmers decide on the best option for participation in 2014 Farm Bill commodity programs—ARC, PLC and SCO. The Excel-based computer aid will allow farmers to evaluate programs and select the option that best fits their farm.

Using the tool, farmers can enter their crop acres and yields, and the program will calculate their new crop base acre allocation and program yield. Results, presented in both current and updated base acres, can help farmers determine if updating their base acres with the Farm Service Agency (FSA) is to their advantage.

The model estimates the future yields based on trend yields, but farmers have the option to override these values and can re-run it with different sets of assumptions about prices and their yields.

Learn more about the program and access it online on K-State’s Ag Manager website (http://www.agmanager.info/crops/insurance/risk_mgt/rm_html14/OSU-KSU_ModelRelease.asp).

This decision tool was developed by Oklahoma State University and Kansas State University, with funding from the Oklahoma Cooperative Extension Service, Southern Risk Management Education Center and K-State Research and Extension.

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