SUPPLEMENTAL COVERAGE OPTION AND OTHER FARM BILL 2014 CHOICES

Lindsay Mitchell

Apr, 24, 2014  |  Today's News

It’s hard not to wonder about farm programs for 2014.  You’re planting a crop right now and you have no idea what happens if that crop fails.  You don’t fully understand crop insurance options if extreme weather hits Illinois.

And the federal government doesn’t either.

Rulemaking and implementation is current underway and our best information points to a fall/winter sign up period.  But until that time, University of Illinois experts are doing analysis to help you understand what this year MIGHT look like after you select your options.

Today, Nick Paulsen and Jonathan Coppess released an article about Supplemental Coverage Option (SCO).  You can read the full article here.

They explain that understanding SCO coverage and how it works with the various individual insurance plans has important implications for producers as they evaluate commodity program options (i.e. PLC vs. ARC) and risk management decisions (i.e. individual insurance plan choices). Because SCO is limited by the statute to the deductible range of the underlying policy, it will operate as individual-based coverage, but the indemnity is triggered and scaled by area-wide (county) losses.

One strategy that has been discussed extensively is the option to reduce individual insurance plan coverage (i.e. from 85% to 80% or 75%) and adding SCO coverage. While this strategy may reduce premium costs due to the 65% subsidy rate on SCO premiums, it does create some additional basis risk for the farm because the deductible coverage provided by SCO required county losses to be triggered. The farm could suffer losses at the individual level and not receive SCO payments if losses are not experienced on a county wide basis.

Furthermore, while the analysis of the decision to use SCO can be delayed until the 2015 crop year when the program is intended to be introduced, producers need to consider their potential desire to use SCO in future crop years when making the choice between the PLC and ARC commodity program decisions.

Farm Doc Daily releases a new article on potential Farm Bill 2014 rulemaking and implementation on Thursdays.  Stay tuned for continued information on what you might expect for the future on your farm.

Click here to read all the Farm Bill 2014 articles published so far.