Supplemental Coverage Option Insurance SCO. Tim Lemmons Ext. Educator Northeast Research and Extension Center

Transcription

1 Supplemental Coverage Option Insurance SCO Tim Lemmons Ext. Educator Northeast Research and Extension Center

2 of Disclaimer This information is based on our reading of the 2014 Farm Bill and discussions with field experts Interpretation and differences in final rules and regulations are very likely This information is intended for educational purposes only Interpretation and analysis of this legislation is an ongoing processes Neither the presenter nor the Board of Regents of the University of Nebraska accept any responsibility for decisions made as a result of the use or interpretation of this material

3 of Agenda What it is How it works How guarantees and payments are made When to use it Things to consider

4 of Supplemental Coverage Option Only available with Price Loss Coverage election and enrollment Works in cooperation with traditional crop insurance programs Sold by local insurance agents Must sign-up prior to planting Premiums will reflect potential payouts, much like RMA insurance

5 of SCO SCO is an endorsement to a standing crop insurance policy Must be a yield or revenue product, area and group products are excluded SCO will mirror the current standing policy

6 of SCO Calculating extent of loss Yield: based on county yield Payment triggered when actual yield falls below 86% of historic average Revenue: county yield + crop insurance reference prices Expected county revenue = Historic county avg. yield x crop insurance* Payment triggered when actual county revenue (or yield) falls below 86% of benchmark *For underlying YP and RP-HPE policies, the crop insurance price will be the projected price; for underlying RP policies, the crop insurance price will be the higher of the projected price and the harvest price.

7 Pct coverage level Extension is a Division of the Institute of Agriculture and Natural Resources at the University of Nebraska Lincoln cooperating with the Countries and the United States Department of What is SCO s purpose? To provide additional protection on top of your individual crop insurance policy SCO range: 86% of average revenue/yield down to underlying farm policy level % Overlaps with ARC (86% to 76% band); can t have both Farm policy SCO

8 of Calculating dollar coverage under SCO (revenue version) SCO liability = total coverage Expected farm revenue x SCO range of coverage Expected farm revenue = Farm APH Yield x Crop Insurance Reference Price SCO range of coverage (RCO) = 86% - coverage of underlying policy

9 of Calculating dollar coverage under SCO (revenue version) Example - corn Underlying traditional crop policy 75% coverage with revenue insurance 140 bu. APH $3.70 price SCO Top Level TCI Level SCO liability = (140 x $3.70) x (86% - 75%) = $518 x 11% = $56.98

10 of SCO Liability by Policy Loss occurs if actual county revenue is less than 86% of expected county revenue - RP Expected county revenue = Historic County Ave Yield x Crop Insurance Reference Price Actual County Revenue = Actual County Average Yield x Crop Insurance Harvest Price

11 Pct coverage level Extension is a Division of the Institute of Agriculture and Natural Resources at the University of Nebraska Lincoln cooperating with the Countries and the United States Department of Calculating Losses on SCO Must calculate the County Payment Factor CPF CPF = percentage of SCO range that is considered a loss Example Underlying policy of 75% Actual Revenue comes in at 79% of historic average CPF = (86 79)/(86 75) = 7/11 = actual county Revenue 86% 86% - 79% 79% 75% expected county Revenue 86% - 75% Farm policy SCO

12 of Examples: CPF calculation 100 Suppose: Actual / Expected = 72% CPF when underlying coverage level is: 85%: %: %: %: (86-72)/16 = %: (86-72)/21 = % 60%: (86-72)/26 = %: (86-72)/31 = %: (86-72)/36 = Farm policy SCO

13 of Calculating Losses under SCO Indemnity payment = CPF x SCO Coverage Corn Commodity 75% Revenue Product $56.98 SCO coverage Actual revenue of historic is = 79% CPF = (86-79) / (86 75) = 7/11 =.636 Indemnity = x $56.98 = $36.24

14 of When to Buy SCO SCO has a premium payment SCO is 65% subsidized SCO applies to plant acres, not base ARC pays on 85% of base SCO is more attractive when base is less than planted acres Use when over FSA payment limit ($125K)

15 When to Buy SCO - Availability Extension is a Division of the Institute of Agriculture and Natural Resources at the University of Nebraska Lincoln cooperating with the Countries and the United States Department of

16 When to Buy SCO - Availability Extension is a Division of the Institute of Agriculture and Natural Resources at the University of Nebraska Lincoln cooperating with the Countries and the United States Department of

17 When to Buy SCO - Availability Extension is a Division of the Institute of Agriculture and Natural Resources at the University of Nebraska Lincoln cooperating with the Countries and the United States Department of

18 When to Buy SCO - Availability Extension is a Division of the Institute of Agriculture and Natural Resources at the University of Nebraska Lincoln cooperating with the Countries and the United States Department of

19 of SCO Sign Up As usual sign up with underlying insurance policy prior to March 15 th Must comply with conservation requirements to be eligible for premium subsidies

20 of Other Crop Insurance May obtain separate enterprise units for rain-fed and irrigated units in 2015 If the county suffers a 50% yield loss, farmers may exclude their yield from the APH calculation

21 of SCO Challenges Depending on premium cost is it better/cheaper to buy up crop insurance rather than purchase SCO or vice versa? What is the cost difference and coverage between basic unit and enterprise?

22 of SCO and PLC Your farm bill decision is crop by crop, farm by farm Consider 100 acre farm with 10 acres of corn base If we put the 10 acres corn into PLC, all farm acres qualify for SCO coverage

23 of SCO and PLC Your farm bill decision is crop by crop, farm by farm Consider 100 acre farm with 10 acres of corn base If we put the 10 acres corn into ARC-CO, plant all corn The 10 acres of corn base DO NOT qualify for SCO and no non-base acre planted to corn will qualify either

24 of SCO and PLC Your farm bill decision is crop by crop, farm by farm Consider 100 acre farm with 10 acres of corn base If we put the 10 acres corn into ARC-CO, plant all beans The 10 acres of corn base DO NOT qualify for SCO, but all soybean acres do

25 of SCO and PLC Your farm bill decision is crop by crop, farm by farm Consider 100 acre farm with 10 acres of corn base If we put the 10 acres corn into ARC-CO, plant all beans The 10 acres of corn base DO NOT qualify for SCO, but all soybean acres do

26 of SCO Strategies If the farm is large, but has small base Could put the base (regardless of crop) into PLC and protect the farm using SCO insurance Put the crop base into ARC-CO, but only plant a crop that qualifies for SCO You do not need to participate in the farm bill to quality ground for SCO payments You must purchase traditional crop insurance to qualify for an SCO endorsement

27 of SCO Strategies Remember SCO does not trigger at the farm level, it triggers on the performance of the county the Farmer s prayer. The probability of SCO payment will vary depending on the constitution of the county (irrigated vs. rainfed) and the RMA seasonal prices (move up or down) Watch for premium cost verses a move to large-scale policies and/or buy-up of coverage

28 Questions?

29 Supplemental Coverage Option Insurance SCO Tim Lemmons Ext. Educator Northeast Research and Extension Center