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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Farm Bill Safety Net Payments Provide Producers Small Cushion

ajsmplastina_alejandro_2014Alejandro Plastina, ISU Extension Economist, and Ann Johanns, Extension Program Specialist, provide an explanation of the data used in calculating 2015 ARC-CO payments in Iowa.

Final data on 2015 county level yields was recently released by the USDA Farm Service Agency. This is the final information needed for calculating payment rates under the Agriculture Risk Coverage-County (ARC-CO) program.

The Marketing Year Average (MYA) prices for the marketing year starting Sept. 1, 2015 and ending Aug. 31, 2016 were $3.61 for corn and $8.95 for soybeans. The payments released by the USDA Farm Service Agency starting in October 2016 are for crop acres enrolled during the 2015 crop year.

Payments under the 2014 Farm Bill are tied to the base acres on a farm and are not influenced by the crop grown in the payment year.

ARC-CO Payments

2015 ARC-CO payments on corn base acres (payments rounded to nearest dollar)
2015 ARC-CO payments on corn base acres (payments rounded to nearest dollar)

ARC-CO payments by base acre for corn and soybeans are shown in Figures 1 and 2. Under the ARC-CO program, producers receive payment on 85 percent of their base acres. This 15 percent reduction is factored into the values seen in the related figures. Furthermore, a 6.8 percent deduction is applied due to the federal government’s sequestration of the budget. Seven counties (Appanoose, Decatur, Henry, Lucas, Marion, Monroe and Washington), all located in the south central and southeast portion of the state, will not see a payment for corn or soybean acres.

Eight counties (Clarke, Jefferson, Keokuk, Pottawattamie, Ringgold, Van Buren, Warren and Wayne) will receive a payment on soybean acres and not on corn. Another 26 counties will receive a corn payment and no soybean payment (Adair, Bremer, Buena Vista, Calhoun, Carroll, Cerro Gordo, Clay, Davis, Dickinson, Emmet, Floyd, Franklin, Guthrie, Hancock, Howard, Humboldt, Kossuth, Madison, Mitchell, Monona, Palo Alto, Pocahontas, Sac, Winnebago, Worth and Wright). Base acres enrolled in ARC-CO in the remaining fifty-eight counties will receive a payment at some level for both crops.

soybeanpayments2016
2015 ARC-CO payments on soybean base acres (payments rounded to nearest dollar)

PLC Payments

With the 2014 Farm Bill, Iowa producers had two options to choose from, ARC-CO or Price Loss Coverage (PLC). The PLC program provided a safety net for producers should the MYA prices be below the set reference prices of $3.70 for corn and $8.40 for soybeans. No payments were seen in Iowa under the PLC program for 2014, but a small payment will be received for corn base acres enrolled in PLC for 2015. The payment per bushel will be $0.07 (after 6.8 percent sequestration) and based on yield information at the farm level. Producers were given the option to update their yield information with FSA during program sign-up.

Statewide Payments

The average ARC-CO payment per base acre on corn was $33.51 and $15.68 for soybean acres in Iowa. With over 22 million base acres in the state enrolled in ARC-CO or PLC, estimated payments for Iowa producers under ARC-CO for the 2015 marketing year is approximately $646 million with another $3.8 million going towards corn base acres enrolled in PLC.

More information on the 2014 Farm Bill, including decision tools to see detailed calculations of payments by county, are available through the Ag Decision Maker website. Maps of payments can be found through the Center for Agricultural and Rural Development Farm Bill mapping tool. Projections for 2016/17 payments are updated regularly as information is released by USDA FSA.

Why it is not OK to use NASS yields to calculate ARC-CO payments

plastina_alejandro_2014Alejandro Plastina, ISU Extension Economist, provides explanation of the yield data used in calculating ARC-CO payments in Iowa.

On February 22 2016, the USDA National Agricultural Statistical Service (NASS) released the final county crop production estimates for 2015: 73 Iowa counties had higher corn yields in 2015 than in 2014, 22 had lower yields, and 2015 corn yields were not reported for Mills, Monroe, Taylor, and Union County; 86 counties had higher soybean yields, 11 had lower yields, and 2015 soybean yields were not reported for Taylor and Mills County.

Knowing that higher county yields reduce the likelihood and the potential amount of ARC-CO payments, the NASS release spurred the interest of producers to recalculate their own projected ARC-CO payments for the 2015/16 crop marketing year. However, two important details often overlooked when calculating projected ARC-CO payments are (1) that county yields are determined on a per planted acre basis, as opposed to a per harvested acre basis; and (2) that the official county yields used in the final calculation of ARC-CO payments are published by USDA Farm Service Agency (FSA), as opposed to NASS.

NASS yields are calculated as production (in bushels) divided by harvested acres. Since they are not determined on a per planted acre basis, they cannot be used to calculate ARC-CO payments.

FSA yields are only available after the end of the crop year and are calculated on a per planted acre basis. Therefore, most of the difference between FSA and NASS yields is explained by failed acres. The average difference between FSA and NASS county corn yields in Iowa for 2014/15 (the only year for which both yields are publicly available), amounts to 4.75 bushels per acre.

arcco3232016In an effort to reflect the impact of failed acres on the yield used to project ARC-CO payments, the ISU Projected ARC-CO Payment Calculator uses “corrected” yields in the calculation of the 2015/16 actual county crop revenue. The “corrected” yields are based on NASS production data and obtained by dividing production (in bushels) by planted acres. For 63 Iowa counties the “corrected” yields in 2014/15 were closer to the official FSA yields than NASS yields were. For example, the corn yield used by FSA to calculate ARC-CO payments for Lyon County in 2014/15 is 149 bushels, while the NASS yield is 172.9 bushels, and the “corrected” yield is 155 bushels. The average difference between FSA and “corrected” corn yields amounted to 0.42 bushels per acre.

Judging by the release date of 2014 county yields by FSA on October 23, 2015, it can be expected that FSA will release final 2015 county yields in October 2016, at about the same time as the 2015 ARC-CO payments. Until then, the ISU ARC-CO Payment Calculator will use a “calculated” yield and projected marketing year price until the price for the marketing year is finalized the end of September.

All ISU Extension and Outreach Farm Bill decision tools are available online at: http://www.extension.iastate.edu/agdm/info/farmbill.html

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2014 Farm Bill: Noninsured Crop Disaster Assistance Program

Contributed by Kristen SchulteFarm Business Management Specialist, Iowa State University Extension and Outreach, kschulte@iastate.edu, 563-547-3001

schultek_finalThe 2014 Farm Bill extended the Noninsured Crop Disaster Assistance Program (NAP), and the program expanded its coverage by allowing producers to purchase additional coverage. Producers have the opportunity to make this change for policies set for the 2015 crop year until January 15th, 2015.

What does NAP cover?

  • Crops (not livestock) that are commercially produced for food and fiber for which catastrophic coverage under Federal Crop Insurance is not available.
  • Losses due to damaging weather (drought, hurricane, freeze, etc.), adverse natural occurrences (volcanic eruption, flood, etc), and other adverse natural occurrences (ex. excessive heat, insect infestation, ect.).

Signing up for NAP?

  • Producers must apply by application closing date; application is completed with form CCC-471. Application closing dates may vary by crop.
  • To be eligible for NAP, producers must report crop type and variety, location of acres, producers and related shares of crop, growing practice, crop planting date, and intended use of crop commodity. After planting or harvest, producers must also report acres planted, quantity of harvest, and disposition of crop. Production records may be required by FSA.
  • Application must also include service fee. Service fee is $250 per crop or $750 per producer per administrative county. Premiums are also due if electing buy-up coverage.
  • Beginning, limited resource, and traditional underserved farmers are eligible for a waiver of the service fee and 50% premium reduction (file form CCC-860).

What are the NAP coverage levels?

  • Catastrophic Coverage (CAT) covers losses greater than 50 percent at 55 percent of the commodity price.
  • Additional coverage, with premium, is available from 50 to 65 percent in 5 percent increments for production loss at 100 percent of average market price.
  • Premiums for additional coverage is equivalent to 5.25 percent of calculated crop covered value (accounts for share of crop, eligible acres, approved yield, coverage level, and average market price)

Crop losses and NAP?

  • When a loss occurs, notify the FSA office within 15 days of the natural disaster occurrence, prevented planting due to natural influences, date damage is apparent, or normal harvest date (whichever date comes first).
  • For hand-harvested crops that require a timely assessment of loss before deterioration, notify FSA of losses within 72 hours for certain crops.
  • Losses must be verified by the producer by completing form CCC-576, additional documentation/evidence may apply.
  • Average market values are used. At the state level, FSA may set separate market prices for a crop based on represented farming practices or sales to different markets within the state.
  • Retroactive pay for 2012 NAP assistance is available for losses to fruit crops (trees or bushes) in counties that had Secretarial disaster designations due to frost or freeze are available.

Additional Information

  • Grazed acres can only participate in NAP at the CAT level; however, these acres can only participate in either NAP or Livestock Forage Disaster Assistance Program
  • Annually, payments are limited to $125,000 per individual or entity.
  • Additional information can be found at fsa.usda.gov/nap.
  • A decision tool is available through FSA and collaborating universities, http://fsa.usapas.com/

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ISU Extension Farm Bill – Program Overview Meetings

Iowa farmers and landowners will learn about the new programs authorized by the Agricultural Act of 2014 (commonly referred to as the Farm Bill) at informational meetings conducted by Iowa State University Extension and Outreach and local USDA Farm Service Agency staff members. Meetings will be held across the state to explain options available under the new Farm Bill.

Farm Bill – Program Overview meetings will focus on the Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) that will be administered by USDA Farm Service Agency, and the Supplemental Coverage Option (SCO) administered by USDA Risk Management Agency through federal crop insurance providers.

“Extension farm management specialists are prepared to discuss decisions farmers and landowners need to make in the coming months regarding Price Loss Coverage, and Agricultural Risk Coverage Individual and County options,” said Chad Hart, ISU Extension and Outreach economist and program coordinator. “Local FSA staff members who administer the programs will be available to answer questions.”

The timeline for when decisions need to be made along with information about online Farm Bill decision tools also will be shared at the meetings. Topics that will be covered during the meetings include:

  • Base reallocation
  • Yield updating
  • Price Loss Coverage (PLC)
  • Ag Risk Coverage (ARC)
  • Implications of PLC and ARC on participation in the Supplemental Coverage Option (SCO)
  • Dairy Margin Protection Program (MPP)
  • Noninsured Crop Disaster Assistance Program (NAP)

Locate a Farm Bill – Program Overview meeting
Farm Bill meetings for upcoming months continue to be added to the ISU Extension and Outreach Statewide Calendar. For the most current listing of meeting locations and dates visit the Ag Decision Maker Farm Bill website at www.extension.iastate.edu/agdm/info/farmbill.html or contact your county extension office.

The Ag Decision Maker Farm Bill website also contains useful links and resources related to Farm Bill decision making. Contact a county extension office for additional details about upcoming local meetings.

PHOTO:
Steve Johnson, farm management specialist, and Chad Hard, extension economist, visited with 2014 Farm Progress Show visitors about  the farm bill.

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