Understanding the Supplemental Coverage Option

Payment scenarios

Scenarios are compared where the farmer purchases yield or revenue protection with the harvest price exclusion (YPwHPE or RPwHPE) at a coverage level of 80%. Different insurance program and coverage level choices would result in different SCO payments over time.

 

 

Figure 1 reports the deviation from simple linear trend yield in McLean County from 1977 to 2011. Yields fell below 90% of trend in nine out of the 35 crop years, indicating SCO with 80% yield insurance would have triggered payments in those years. Maximum SCO payments would have been triggered in four of those payment years – 1980, 1983, 1988 and 1995 – as actual revenues fell below 80% of the guarantee.

 

 

Figure 2 reports the deviation from the SCO revenue guarantee (base price x trend yield) for McLean County from 1977 to 2011. SCO payments would have been triggered in 17 of the 35 years, with the maximum payment triggered in six of those years – 1977, 1983, 1988, 1991, 1998 and 2000.

 

 

Figure 3 provides a historical comparison of net payments for SCO with 80% yield (blue bars) and revenue (red bars) insurance. The net payment was defined as the SCO payment less the farmer’s portion of the premium. The fair premium was set equal to the average payment level across the 36 years considered ($19/acre for SCO with 80% yield insurance, $40/acre for SCO with 80% revenue insurance), and farmer paid premiums were set to 30% of the fair rate ($6/acre for SCO with 80% yield insurance, $12/acre for SCO with 80% revenue insurance).