Crop insurance could be expensive this year.
On the bright side, projected prices will also be on the higher side, which means your increased investment in the upcoming crop has better protection in case yields or prices go south.
"We're going to have higher projected prices for 2022, and depending on the volatility factors, that tends to favor higher premiums for 2022 revenue-protection plans," retired Iowa State University Extension farm management specialist Steve Johnson says.
Despite higher premiums for revenue-protection (RP) insurance, he thinks there will be more interest in shallow-loss crop-insurance products, like the Supplemental Coverage Option (SCO) and the Enhanced Coverage Option (ECO), which are usually used in addition to an RP policy.
Premiums for these products are more expensive still, but with crop prices/expenses this high, the ability to cover a greater portion of revenue makes it a potent risk-management tool.
Both programs allow farmers to buy higher levels of coverage than the typical 75, 80 or 85% under RP policies. Under SCO, farmers can buy up from their RP policy level to 86% of the revenue guarantee. ECO covers a higher band, from 86 to either 90 or 95%. You do not have to purchase SCO in order to buy ECO.
Unlike revenue policies that pay based on the farm's yield history, SCO/ECO payments are triggered by county yields. There are also some restrictions on farm bill programs elections.
A University of Illinois study last year found that 90% of ECO coverage on corn pays out about 50% of the time at nearly double the premium. But, it also found that SCO and ECO indemnities don't always pay in years of a revenue shortfall.
-- Read Katie's business blog at about.dtnpf.com/business
-- You may email Katie at firstname.lastname@example.org, or visit @KatieD_DTN on Twitter.
(c) Copyright 2022 DTN, LLC. All rights reserved.