NEWS
SCO Sticker Shock
Marcia Zarley Taylor DTN Executive Editor
Tue Jan 27, 2015 06:57 AM CST
(Page 1 of 2)

AUSTIN, Texas (DTN) -- The normal weather around Chris Nemec's central Texas farm vacillates between "constant drought and intermediate flooding," he likes to say. Despite those extremes, Nemec -- who farms with his father Don and brother Andrew -- won't be taking the government up on its new crop insurance offering this season.

Repeated droughts in Texas made high-levels of crop insurance unaffordable for many growers, even with the farm bill's debut of Supplemental Coverage Option riders for shallow losses, farmers and crop insurance agents say. (DTN photo by Chris Clayton)

What's more, the Nemecs aren't the only ones saying "no thanks" to the Supplemental Coverage Option, even though it was specifically designed to help growers in high-risk regions cover shallow losses, crop insurance agents report.

SHALLOW-LOSS SOLUTION

While growers throughout the Midwest routinely purchase 80% or 85% Revenue Protection policies, 50% to 65% is the norm in higher-risk regions like Texas or the Great Plains. Farm bill architects designed SCO for growers outside the Midwest who couldn't afford or couldn't even acquire Revenue Protection coverage above 75%. In effect, the new law will let them buy area revenue coverage up to 86% of their insurable revenue for the first time -- but only if they combine it with Price Loss Coverage under the new farm program. Unfortunately, SCO's high cost remains a deterrent even for operators likely to opt for Price Loss Coverage.

(Sale closing dates to sign up for SCO, as well as conventional crop insurance, start as early as Jan. 31 in Southern states but run until March 16 for most of the Midwest).

"It's just out of line," Nemec says of the $5 an acre he'd spend on SCO premiums to buy another $40 of protection per acre. "I could buy 85% Revenue Protection coverage for about the same amount of money as SCO, and it protects my actual revenue, not a county average."

After droughts in 2011 and 2008 left "goose eggs" in his yield history, Nemec's crop insurance Actual Production History tumbled about 20%. But he's also not exercising a last-minute offer from USDA that would allow him to exclude repeated yield disasters in his APH.

"The cost of that was also unbelievably high," Nemec said. "My crop insurance agent said he just had a gut feeling there must be something wrong with the (APH-exclusion) software."

LACK OF CONFIDENCE IN COUNTY YIELDS

Worth Eubanks, a crop insurance specialist for Farm Credit Mid-America in Humboldt, Tenn., has spent much of the winter so far explaining farm program details to customers, but is meeting similar sticker shock on SCO.

"There's not a lot of interest in my area even after the conversation," he said. If crop insurance guarantees March 1 are close to late-January prices, SCO would cost about $8 to $12 an acre on corn in western Tennessee, he added.

"That's a little higher than we anticipated. Plus farmers don't have a lot of confidence in using county yields as a trigger," Eubanks said. Like Nemec, he thinks most growers would simply prefer to bump up their individual coverage under Revenue Protection for the same dollar. So instead of a 75% Revenue Protection policy, they might buy 80%.

GAPS IN SCO's AREA COVERAGE

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