Large payments for both supplemental options would have been triggered in the 1980, 1983, 1988 and 1991 crop years. There are also years where SCO with yield insurance would have triggered payments, but SCO with revenue insurance would not have triggered payments – 2002, 2011, and a very large SCO with yield insurance payment in 1995. In these years, insurance price increases during the crop year offset the realized yield losses. SCO with revenue insurance would have triggered payments in years when losses were driven by within-year price declines, notably in the early 1980s, late 1990s and early 2000s. Note also the years when SCO payments are not triggered and the farmer would have to give up the subsidized SCO premium.

The average net payment in the McLean County example was just under $28/acre for SCO with 80% revenue insurance and just over $13/acre for SCO with 80% yield coverage. While there is some slight variation across counties in Illinois, expected payment estimates are similar in other areas of the state. In both cases, these expected net payments are larger than those calculated for the county- and farm-level ARC program using similar methods. Therefore, SCO might be an attractive option for some farmers and, depending on adoption rates and price and yield realizations over the next farm bill period, an expensive program to administer.

The choice between ARC and SCO (as well as the option to combine them) and the impact of their availability on crop insurance choices are issues that should carefully be considered. The yield protection offered by the SCO program is arguably better than ARC as it is assumed to incorporate yield trends. However, the price component of SCO, which is assumed to be similar to insurance programs, does not offer the multi-year price protection provided by ARC’s moving average. Adoption of SCO among farmers may also be impacted by the way in which it will be administered – through the Federal Crop Insurance Corporation. In contrast to ARC, which would be administered through the Farm Service Agency, there will be direct financial incentives to the crop insurance industry to support and encourage enrollment in SCO.

 

Read the full article at farmdocDaily.