Considerations for Adding SCO Crop Insurance

Steve Johnson, headshot

Contributed by Steve Johnson, Extension Farm Management Field Specialist, sdjohns@iastate.edu

The decision to purchase Supplemental Coverage Option (SCO) crop insurance in 2020 must be confirmed with your crop insurance agent on or before March 15, 2020. This deadline for making crop insurance changes for spring planted crops now becomes the same deadline for electing and enrolling annually in the ARC/PLC program at your local USDA Farm Service Agency (FSA) office.

The SCO product is available to producers who elect and will enroll in the Price Loss Coverage (PLC) commodity crop program on a farm in 2020. With the ongoing election/enrollment in the ARC/PLC program this winter, the expectation of many experts is that most farmers will choose the PLC program on their corn base acres. However, the ARC-County (ARC-CO) program will be the choice for most soybean base acres.

The SCO band of coverage is based on the county revenue given that the underlying COMBO crop insurance product, likely Revenue Protection (RP) is also purchased. SCO provides a protection in a band at an 86% maximum level down to the coverage level selected for RP. An example would be a farmer who selects a 75% coverage level for RP and adds the SCO product. Thus, SCO could provide county-based revenue coverage from the 86% to the 75% level, or 11% total SCO.

To trigger an indemnity claim the actual county revenue must fall below 86% of the county revenue guarantee before SCO would trigger a payment. As a result, the RP-SCO combination provides mixed coverage: Farm-level coverage is provided from the RP product downward (65%, 70%, 75%, 80% and 85% levels) while county-level coverage provides between 86% and the coverage level of the RP product.

The primary disadvantage of the RP-SCO combination is that the county-level coverage may not match losses on a farm. Sometimes a farm may have a large revenue loss while SCO will not trigger a payment. It’s also possible that the farm does not have a loss while the county-based SCO product triggers a payment. Note that if an SCO indemnity payment is made, the farmer will not receive it until the June following harvest when USDA’s Risk Management Agency (RMA) releases the final county yields.

The primary advantage of purchasing an RP-SCO combination product is a lower overall farmer-paid premium. However, consider if your county yields are typically less variable than your farm’s yields. This could result in fewer indemnity claims for a county-based product than for that farm-level product at the same coverage level. SCO has a government subsidy rate of 65% which is higher than the rate for RP at the 85% coverage levels using enterprise units. This 65% subsidy rate is higher than all subsidy levels for basic and optional units when the coverage level is above 50%.

Farmers who typically purchase RP at high coverage levels (80% and 85%) will likely find a slightly lower farmer-paid premium by adding SCO. But consider a couple cautions before you add the SCO product in 2020. First, make sure your farm’s yields are reflecting your county’s yields. Second, if an SCO indemnity payment is triggered, don’t expect to receive those proceeds until the June following harvest.

Be aware of the time constraints that both FSA county office staff and crop insurance agents will have as this March 15, 2020 deadline approaches. Prepare now to elect and enroll in the ARC/PLC programs for your farms and perhaps update your PLC yields that will be effective for the 2020 crop. Then discuss with your agent the crop insurance changes you’ll be making in 2020 including the possibility of adding the SCO product if you will be enrolling in the PLC program for that crop.

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Delayed and Prevented Planting Resources for 2019 from ISU Extension and Outreach

On May 24, 2019, ISU Extension and Outreach field agronomists, Rebecca Vittetoe and Virgil Schmitt, along with farm management specialist, Ryan Drollette recorded a webinar on delayed and prevented planting. The following are links to resources for 2019 delayed and prevented planting decisions.

Delayed and Prevented Planting Webinar and Resources

Agronomic ResourcesFlooded, unplanted field

Cover Crops

Farm Management, Crop Insurance

More Information

Prevented Planting FAQ for 2019

Contributed by Steve Johnson, Extension Farm Management Field Specialist, sdjohns@iastate.edu

Steve JohnsonQuestion: When is prevented planting available?

Answer: Prevented planting must be due to an insured cause of loss that is general in the surrounding area and that prevents other producers from planting acreage with similar characteristics. Failure to plant when other producers in the area were planting will result in denial of the prevented planting claim.

There’s also a 20/20 Rule – a minimum of 20 acres or 20 percent of the unit must be affected. Total acres   of planted and prevented planted cannot exceed the total cropland acres. Prevented planting claims must be filed with your crop insurance agent by June 28   for corn and July 13 for soybeans. Prevented planting acres must be reported on the FSA Form 578 acreage report. That deadline to file that form in Iowa is July 15, 2019.

Question: When is prevented planting not available?

Answer: On ground that is insured through a New Breaking Written Agreement; Conservation Program Reserve land that is in its first year out of CRP; on ground where a pasture or forage crop is in place during the time of planting; when other producers in the area   are able to plant; and on county-based crop insurance area policies such as AYP and ARPI.

Question: How much do I get paid for prevented planting

Flooded field

Answer: When spring conditions prevent a crop from being planted, payment equals 55 percent of the initial revenue guarantee on corn and 60 percent on soybeans.

  • An example payment for corn would look like the following: 190 bushels APH x 80% x $4.00/ bu = $608 initial revenue guarantee x 55% = $334.40/acre PP payment.
  • For soybeans, an example is: 55 bushels APH x 80% x $9.54/bu = $419.76 initial revenue guarantee x 60% = $251.86/acre PP payment.
  • Note that payments for prevented planting use the projected price (new crop futures price average in February).

Question: How are eligible acres for prevented planting determined?

Answer: The insurance company considers each of the insured’s crops in each county. They look at the maximum number of acres reported for insurance and certified in any of the four most recent crop years. The acres must have been planted in one of the last three crop years.

Question: What happens if you are prevented from planting and there are not enough eligible acres for the crop being claimed?

Answer: When the insured runs out of acreage eligibility for one crop, the remaining prevented planting acres will be “rolled” to another crop, such as corn to soybeans.

Question: What happens to my APH – actual production history – if I take prevented planting?

Answer: The insured farmer who receives prevented planting on a crop does not have to report the actual yield for the year. Generally, prevented planting will not impact the APH yield in future years, unless a second crop is planted on prevented planting acres.

Question: What happens if the first crop is prevented planting, but the second crop is planted?

Answer: If the second crop is planted, it MUST be insured if there was insurance for that crop elected on or before March 15, 2019. The second crop must have been planted AFTER June 25 for corn and July 10 for soybeans. If the insured farmer plants a second crop they will still receive 35 percent of the indemnity for the prevented planting crop and pay only 35 percent of the premium.

Planting a second crop on prevented planting ground affects the following year’s APH:

  • First crop – you receive 60 percent of the approved yield (190 bu/A APH X 60% = 114 bu/A).
  • Second crop – actual yields are used for APH.

Question: What will crop insurance adjusters need to do for prevented planting claims?

Answer: Visually inspect all prevented planting acres to determine:

  • Acres are within five percent of what was on the acreage report.
  • Whether the acres are left idle, or whether a cover crop or second crop has been planted.
  • What the cause of loss was, and if it is general to the area.
  • Determine eligible acres.
  • Roll acres to other crops if insured is short of eligible acres for reported prevented planting crop.

Question: What are the deadlines for filing prevented planting in Iowa?

Answer: These dates vary by state, but tend to be three days after the last day of the late planting period.

  • In Iowa, the deadline for filing prevented planting with your crop insurance agent is June 28 for corn and July 13 for soybeans.
  • Acreage reporting deadline is July 15.
  • Prevented planting acres listed on your acreage report (FSA Form 578) should match the information provided to your crop insurance agent in order to qualify for a full indemnity payment.
  • Work with your crop insurance agent well in advance of these dates regarding a prevented planting claim and whether a cover crop or a second crop will be planted.

Question: If I have to leave some of my acres unplanted (prevented planting), will they still count toward my eligibility for enterprise units?

Answer: Only planted acres are considered when determining eligibility for enterprise units. (To qualify for enterprise units on crop insurance policy, at least the smaller of 20 acres or 20 percent of planted acres must be in two or more different township sections.) For example, a farm with 200 acres each in two sections would normally qualify for enterprise units. However, if fewer than 20 acres are planted in one of the sections, the farm would no longer qualify. Possible increases in crop insurance premiums due to a change in unit designation should be considered when deciding whether or not to file a prevented planting claim on some acres.

Question: If I take prevented planting on some of my fields and plant a cover crop, when can I harvest or graze the cover crop?

Answer: If you plant any kind of cover crop and expect to receive a crop insurance indemnity payment for prevented planting, you cannot harvest or graze those acres until after November 1 (September 1 for 2019 crop only, RMA announcement).

ISU resources for more information

More details can be found in the ISU Extension and Outreach Ag Decision Maker publication, Delayed and Prevented Planting Provisions. An electronic decision spreadsheet is also available to help analyze alternative actions. Producers should communicate with their crop insurance agent before making decisions about replanting or abandoning acres.

More resources on Recovering from Disasters are also available from ISU Extension and Outreach.

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Supplemental Coverage Option for 2019 Crops

Contributed by Steve JohnsonFarm Management Specialist, Iowa State University Extension and Outreach, sdjohns@iastate.edu

Headshot of Steve JohnsonSupplemental Coverage Option (SCO) crop insurance was introduced in the 2014 Farm Bill but was limited to acres enrolled in the Price Loss Coverage (PLC) commodity program. SCO was not available when Agricultural Risk Coverage (ARC) was chosen by crop by FSA farm number. ARC was the choice for nearly 98 percent of the Iowa’s base corn acres and over 99 percent of the base soybean acres from 2014 through 2018.

As a result, SCO was not a crop insurance choice for very many farms through 2018. Similar to the 2014 Farm Bill the 2018 Farm Bill again gives farmers a choice by crop by FSA farm number to elect and enroll in either the ARC-County or the PLC program.

However, with the 2018 Farm Bill being implemented in 2019, the expectation of some experts is that many farmers will eventually enroll in the PLC program for the 2019 and 2020 crop years, especially on their corn base acres. That’s because of the potential for the PLC program to trigger payments should the final national average cash price fall below the $3.70 per bushel reference price. Enrollment in PLC will lead to more insured crop acres being eligible for the purchase of SCO. For 2019, SCO premiums appear very attractive as compared to Revenue Protection (RP) at higher coverage levels.

Coverage based on county revenue

The SCO band of coverage will be based on the county revenue given that the underlying crop insurance product is RP. SCO provides a protection in a band at an 86 percent maximum level down to the coverage level selected for RP. An example would be a farmer who selects a 75 percent coverage level for RP in addition to the SCO product. Thus, SCO could provide county-based revenue coverage from the 86 percent to the 75 percent level.

To trigger an indemnity claim, a county-based revenue must fall below 86 percent of expected revenue before SCO makes a payment. As a result, the RP-SCO combination provides mixed coverage: Farm-level coverage is provided from the RP product downward while county-level coverage provides between 86 percent and the coverage level of the RP product.

The primary disadvantage of the RP-SCO combination is that the county-level coverage may not match losses on a farm. Sometimes a farm may have a loss while SCO will not trigger a payment. It’s also possible for the farm to not have a loss while the county-based SCO product triggers a payment.

Premiums under RP-SCO combinations

The primary advantage of using SCO is a lower farmer-paid premium. The costs of an RP-SCO combination product will usually be lower than the 85 percent RP product alone for two reasons.

First, the county yields are typically less variable than the farm yields, resulting in fewer payments for a county-based product than for a farm-level product at the same coverage level. Lower payments then result in a lower premium. Second, SCO has a subsidy rate of 65 percent which is a higher than the RP at the 85 percent coverage levels using enterprise units. This 65 percent subsidy rate is higher than all subsidy levels for basic and optional units when the coverage level is above 50 percent. These government paid premiums are reflected in Table 1 below.

table showing premium assistance levels on farm-level products

Who should consider SCO?

Farmers who typically purchase RP at high coverage levels could find SCO useful, particularly if a lower coverage level is selected that might result in a lower farmer-paid premium. However, the farmer should have the intention of eventually electing and enrolling those crops on those farms in the PLC program. Farmers interested in SCO coverage for 2019 should discuss premiums and choices with their crop insurance agent before the March 15 sales closing deadline on spring planted crops.

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Crop Revenue Insurance Proceeds – Price Loss versus Yield Loss

Contributed by Charles BrownFarm Management Specialist, Iowa State University Extension and Outreach, crbrown@iastate.edu, 641-673-5841

With the drought and floods in 2018, there has been some discussion on the income tax treatment of crop insurance proceeds. Some people may have sold the 2017 crop in 2018 and are concerned about the doubling of income if they also received their crop insurance payments in 2018 as well. It is possible to defer the crop insurance to the year following harvest, but certain criteria have to be met.

A cash method farmer may elect to postpone reporting insurance proceeds on damaged crops from the year of damage to the following year if 50% or more of the crop is normally sold the year following production. This is determined on a crop-by-crop basis. This is done by making the election IRC Sec. 451(d); Reg. 1.451-6 on the tax return for the year of loss. A statement must be attached to the tax return and include the following:

  1. This election is made under IRC Sec. 451 (d) and Reg. 1.451-6.
  2. Identification of the specific crop or crops destroyed or damaged.
  3. A statement that under normal conditions the crop would have been sold the following year.
  4. Identification of the cause of destruction or damage and the dates it occurred.
  5. The amount of payment received and the date each payment was received for each crop.
  6. The name of the insurance carrier or payer from whom the amounts were received.

If you defer insurance for one crop you must do it for all crops that insurance money was received for. This would include any disaster money received from USDA. Crop revenue insurance guarantees a certain level of income based on yield and price. Sec. 451(d) allows the deferral of crop insurance proceeds “received as a result of destruction or damage to crops” or the inability to plant crops because of a natural disaster. IRS has previously ruled that insurance programs that provide payments without regard to actual losses fall outside the statutory definition of destruction of damage to crops. Therefore crop revenue insurance proceeds would not be eligible for deferral. However, if you can prove a portion of the insurance proceeds was the direct result of crop damage due to hail, flooding, drought or some other destruction, or some portion of the proceeds was the result of damage, then that portion of the insurance proceeds should be allowed for the deferral election. The portion of the proceeds that was related to price would have to be reported as income in the year received. This year, 2018, it is possible that the harvest price could be lower than the spring price and a portion of the insurance proceeds will be because of price loss. Please contact your tax professional for consultation on specific questions for your farm.

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