By Michael Sweeney, Vice President of Bickle Farm Solutions
Over the last couple of years, federal crop insurance has brought us a couple of products that allow a producer to cover up to 95% of yield and revenue. Every crop insurance company also has a least one or maybe two products that also take you up as high as 95% protection. But which is the right fit for you?
Let’s start with the public products. Enhanced coverage option (ECO) and supplemental coverage option (SCO) are two relatively new programs that are available here in Ohio. These are both county-based plans, meaning that an entire county must show a loss for any payments to be made. Expected average yields are published for each county and crop. The same spring and fall prices used for crop insurance apply. ECO can be selected at a 90% or 95% trigger level and goes down to 86%. SCO covers from 85% down the underlying coverage level of your multi-peril insurance policy. SCO requires enrollment in PLC at Farm Service Agency and is not available for those who selected ARC.
As I mentioned before, these are area-based plans. This means that all production data from a county must be submitted and analyzed before any payments can be made. Generally, this would be sometime in June of the year following the endorsements being purchased. One advantage to an area-based coverage is that a particular farm may raise a good crop and have a normal year but still collect a payment if the rest of the county raised a below average crop. It works the other way too. If one farm gets an untimely storm and negatively affects yield or revenue in that spot, but the rest of the county is unharmed, chances are there would be no payment. If you are a farmer that consistently outpaces the county average yield these programs may fit you well.
The private product offerings seem to evolve more and more each year. Some have a single “one size fits all” approach to covering the top end and others have a more tiered set of options. There are definite advantages to the private products over ECO and SCO. Possibly the most important being that these will be covering an individual’s actual yield and revenue instead of an average of a whole county. Also, any losses on these private programs will be paid like a normal harvest loss claim, so there is no waiting until everyone else gets production turned in.
There are a few things to consider when looking at the available private products. Most importantly, you should make sure that any banded revenue product you buy has a harvest price option. Meaning that the private product trigger level will go up with the underlying policy level if the fall price is higher than the spring price for that crop. If this is not available, the higher limit of the multi-peril can erode into any payment due on the private product. Another scenario would be that you like the spring price well enough to not be concerned about what the fall price may or may not do, but really want to protect the yield on that higher band. In this case, look for a yield protection option on a banded private product. This option may be a little lower priced than the revenue band with a harvest price option as well.
Of course, either route a producer takes when purchasing top end protection will bring with it a cost. Conventional thinking says that in a year that farm margins are expected to be very tight, cutting costs would be the way to go. However, if you consider that all your margin may lay in the upper 15% of your total revenue per acre this year, the idea of removing that exposure looks more sensible. This may be the year that you and your agent need to really evaluate your crop insurance plan and make sure that it is the most efficient use of your money and above all putting you in the best possible position to mitigate as much risk as possible.
Michael Sweeney is the Vice President of Bickle Farm Solutions and is a crop and farm insurance agent. He is a graduate of The Ohio State University College of Food, Agricultural and Environmental Sciences. His family operates a row crop and fat cattle farm in Southeast Ohio.