Things to Consider When Selecting Crop Insurance

Farmers must finalize their crop insurance decisions for spring planted crops in Missouri by March 15. In 2021, over 9 million row crop planted acres in Missouri were covered by crop insurance policies overseen by the USDA Risk Management Agency. Most farmers purchase revenue protection insurance policies, followed by yield protection policies. Opportunities to increase risk protection within these crop insurance policies are presented below.

Prevent Plant Coverage

Crop insurance's prevented planting provisions provide protection to producers and landowners if they are prevented by extreme weather from planting the insured crop by the insurance policy final planting date or during the late planting period. Prevented planting payments are intended to cover costs accrued prior to planting.

Prevented planting coverage is part of revenue protection and yield protection plans but not of area-based plans. Coverage is calculated as a percent of the policy's insurance guarantee. Coverage factors for corn are 55% and 60% for soybeans, wheat, and grain sorghum. Example: a farmer buys a 75% revenue protection policy on corn acres with $800 of expected revenue. Should the farmer be prevented from planting the crop, a prevented planting payment of $330 ($800 x .75 x .55 = $330) would be paid. For an additional premium cost, prevented planting coverage can be increased to 60% for corn and 65% for soybeans, wheat, and grain sorghum.

When considering the 5% prevented planting buy-up coverage, estimate pre-planting costs like land rent, fall fertilizer application, and herbicide burndown.  If the default prevented planting coverage does not cover pre-planting costs, a risk adverse farmer might be enticed to purchase the 5% buy-up option.

High Coverage Policies

The 2014 Farm Bill introduced Supplemental Coverage Option (SCO). At its core, SCO adds additional area-based coverage above the underlying policy up to 86%, with certain restrictions.  Example: an underlying Revenue Protection (RP) policy of 70% could buy a 16% band (86% – 70%) of SCO revenue protection. The policy holder would have individual revenue protection below 70%, area revenue coverage between 70 – 86% and no revenue protection between 86% and 100%.

Congress added an additional high coverage option in the 2018 Farm Bill titled Enhanced Coverage Option (ECO) allowing farmers and landowners to add a layer of area level insurance either between 86% – 95% or 90% – 95%. Producers using ECO are allowed to enroll in ARC.

Some key points to consider about SCO and ECO are:

• High coverage policies provide more protection for an operation by triggering at more shallow losses but come at a higher premium cost.
• Government subsidies for SCO premiums are 65%; 51% for ECO yield policies; and 44% for ECO revenue policies.
• SCO and ECO are both area-based coverage policies. It is possible for both to trigger payments for losses, only one, or neither.
• SCO and ECO cannot be elected if the underlying crop insurance policy is margin protection, area based, or stacked income protection plan.
• ECO can be purchased with or without SCO.
• SCO and ECO do not qualify for prevented plant coverage.

Conclusion

All crop insurance premiums are set by the USDA Risk Management Agency – not the insurance company selling the policies. This means that the difference between crop insurance providers is the help they can give you at signup and throughout production until the crop is harvested and any indemnities are paid. Ask your crop insurance agent to help you analyze the risk management impacts of the +5% prevent plant provision, and the SCO and ECO high coverage policies.