Businesslink

More Insurance Needed After 2020

Katie Micik Dehlinger
By  Katie Micik Dehlinger , Farm Business Editor

Farmers could be looking at the strongest spring crop insurance price guarantee in years, depending on this month's markets. If the daily close of the December corn contract averages $4.15 per bushel or above, it will be the highest spring insurance guarantee since 2015. On soybeans, it'd take an $11.36-per-bushel average on the November soybean contract to best 2014.

When farmers sign up for their crop insurance next month, they're going to have a new supplemental option to consider: the Enhanced Coverage Option (ECO). It's similar to the Supplemental Coverage Option (SCO) but has some advantages.

SCO lets a farmer buy an additional band of coverage from 86% to the coverage level of their policy, which is usually 75, 80 or 85% in the Corn Belt. Its payments, however, are triggered by county yields, and the acres cannot be enrolled in the Agriculture Risk Coverage program, one of the farm bill programs for farmers. It hasn't been wildly popular, but it's been useful.

ECO pays on county yields and mimics the underlying insurance policy, just like SCO, but it covers a higher band, from 86% to your choice of 90 or 95%. With that high of a coverage level, it would take only a small decline in yield or price to trigger a payment. That's why University of Illinois economist Gary Schnitkey says he expects the program will pay out often, and that's why its premiums are so high.

Farm bill program choice doesn't matter, and farmers also don't have to purchase SCO in order to buy ECO. If a farmer usually carries an 80% revenue policy, and ECO kicks in at 86%, it would seem like there's a gap in coverage. But, Schnitkey says that because the policies pay out based on different parameters (county averages vs. actual production history), it could be a beneficial option for farms that tend to strongly reflect their county or vice versa.

Take a little time this month to watch the markets and look into your insurance options. Whether spring guarantees the best recent benchmarks or not, higher insurance coverage and new risk-management options feel like a relief after the uncertainties of 2020.

> Read Katie's business blog atabout.dtnpf.com/business.

> You may email Katie at katie.dehlinger@dtn.com, or visit @KatieD_DTN on Twitter.

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Katie Dehlinger