Don’t forget about SCO in your PLC vs. ARC-CO Farm Bill decision

Jonathan LaPorte<laportej@msu.edu>, Michigan State University Extension - March 01, 2024

Base acres and planting intentions can make a difference on which program best fits your farm.

for decoration only — The difference in base acres versus planted acres presents a scenario where SCO should be given consideration. Photo by Rudy and Peter Skitterians, Pixabay.

Choosing a Farm Bill commodity program for the 2024 production year is not an easy decision. First, there is the uncertainty of how low market prices will average. Then, add in uncertainty of potential weather impacts on yields with or without low market prices. Those factors are the classic discussion points between choosing between the Price Loss Coverage (PLC) or Agriculture Risk Coverage (ARC) programs. But since the 2018 Farm Bill, an equally important, but often overlooked discussion point is how the Supplemental Coverage Option (SCO) can influence your program decision. If you haven’t considered SCO, you may be leaving program support and money on the table.

To learn more about SCO and its use in Michigan, visit: SCO Insurance Program and its use in Michigan.

Since the 2018 Farm Bill, the possibility to use SCO has been an added wrinkle in the PLC vs. ARC decision. An option if you choose PLC, SCO is an insurance policy that mimics and stacks on top of your underlying individual policy. For example, if your farm has revenue protection, which considers both yield and price risk, then SCO will also set coverage on revenue. If your revenue protection covers up to 80% of farm revenues, SCO will offer additional coverage from 80% up to 86%. The key difference is that the 80-86% coverage range with SCO determines loss payments using county yields.

The use of county yields is why SCO is not allowed if you choose the ARC-CO program. Both programs use county yields to determine payments and begin coverage at 86% of losses. But a closer comparison of ARC-CO to SCO reviews that a field’s planted acres can shift which program offers potentially more support.

ARC-CO uses 85% of your farm’s base acres to determine payment amounts. Base acres are crop-specific acreages assigned to a field for use in USDA Farm Service Agency programs, in proportion with historical production. The acres of a field can be divided up among several crops and even heavily allocated to one specific crop.

The difference in base acres versus planted acres presents a scenario where SCO should be given consideration. SCO aligns potential risk protection support on the actual crop planted and all of its acres. When base acres do not match planted acres, this creates a situation where SCO could provide better support and more money towards the farm than ARC-CO. This may be true even though payments are still triggered on county information, just like ARC-CO.

Table 1: Example Comparison of ARC-CO to SCO With Different Planted and Base Acres

Corn in Cass County, MI	ARC-CO	SCO (80-86% Coverage)
Acres	Base acres = 20	Planted acres = 100
Projected County Yield	147.4 bushels	147.4 bushels
Actual County Yield at 20% Loss	126.8 bushels	126.8 bushels
Prices	$4.50 (Market-Year-Average)	$4.79 (December Futures)
Premium Per Acre	None	$4.57
Payment Per Acre	$38	$42.25
Net Received per Acre	$38	$37.68
Total Net Received For Field	$760	$3,768

Table 1 illustrates an example farm in Cass County, Michigan with 100 planted acres and only 20 base acres of corn. On a per acre basis, ARC-CO appears to narrowly offer more risk support at $38 versus $37.68 with SCO. However, the ARC-CO rate accounts for the 85% reduction on base acres. When multiplied by 20 base acres, ARC-CO nets $760. SCO uses all 100 acres planted, which results in a net of $3,768 for the farm.

Note: Yields, prices, premiums, and payments are estimates from Eagle Valley Ag Risk Advisors, LLC using an example farm provided by MSU Extension. Producers are encouraged to meet with their crop specialist/insurance agent to discuss and obtain estimated premiums and payments for their specific farms.

Table 2: Example Comparison of ARC-CO to SCO With Same Planted and Base Acres

Corn in Cass County, MI	ARC-CO	SCO (80-86% Coverage)
Acres	Base Acres = 60	Planted Acres = 60
Projected County Yield	147.4 Bushels	147.4 Bushels
Actual County Yield at 20% Loss	126.8 Bushels	126.8 Bushels
Prices	$4.50 (Market-Year-Average)	$4.79 (December Futures)
Premium Per Acre	None	$4.57
Payment Per Acre	$38	$42.25
Net Received per Acre	$38	$37.68
Total Net Received For Field	$2,263	$2,261

Table 2 illustrates the same farm scenario, but if both base and planted acres are the same at 60 acres. In this instance, ARC-CO has a slight advantage over SCO. The projected $38 per acre payment from ARC-CO on 60 base acres nets $2,263 for the farm, while SCO provides $2,261 in net payments for the 60 planted acres.

In both scenarios, the key consideration is the difference in base acres versus planted acres. If base and planted acres are similar, ARC-CO can often be the best choice. If planted acres are significantly higher than base acres, SCO can be a better option. To fully decide whether SCO fits your farm, there are several trade-offs to consider.

All acres insured by your farm’s underlying policy are covered by SCO.
PLC can still be selected with SCO, which may result in larger payments if market prices are low.
SCO can make payments on farms without FSA base acres.
Payments received from SCO are made in July versus ARC-CO payments in October.
Both SCO and ARC-CO have payment caps. ARC-CO can’t exceed 10% of the Olympic average benchmark using historical county yields. SCO covers a payment range (such as 80-86%) and uses your farm’s Actual Production History (APH) to calculate the maximum payment rate.
SCO uses a projected county yield for determining payments, whereas ARC-CO uses an Olympic average of past county yields.
SCO is an insurance policy and requires a premium, while ARC-CO is a free program.
If your underlying policy has a coverage level of 85%, SCO will only offer 1% in additional protection.

The sign-up deadline for Farm Bill programs and crop insurance is March 15^th, 2024. For further help in deciding SCO’s potential impacts on your farm, MSU Extension has released an updated Farm Bill Analyzer decision tool. MSU Extension also recently hosted a series of Farm Bill webinars as part of the Farm Policy and Risk Management Series. Using the decision tool, speakers examined potential risk scenarios you may experience in 2024. To watch a recording of the most recent session, visit: Farm Bill Program & Crop Insurance Decisions – What First Your Farm?

This article was published by Michigan State University Extension. For more information, visit https://extension.msu.edu. To have a digest of information delivered straight to your email inbox, visit https://extension.msu.edu/newsletters. To contact an expert in your area, visit https://extension.msu.edu/experts, or call 888-MSUE4MI (888-678-3464).