Crop Insurance Changes in New Farm Bill
Supplement Coverage Option (SCO) will be available to a farmer who elects Price Loss Coverage (PLC) instead of Agricultural Risk Coverage (ARC). ARC provides similar coverage, however, there is no premium to be paid by the farmer, but there is a limit on the amount of payment that a farmer can receive. With SCO, the farmer can elect to pay a premium (65% subsidized by the government) to cover the amount of insurance that he elects up to 86%.
For example, assume a farmer normally elects 75% revenue coverage. With SCO, he can pay an additional premium to insure up to 86% or an extra 11% of coverage at the county level. The farmer would collect under regular crop insurance based upon his individual coverage with the SCO paying only if the county average was less than 86% of expected revenues. His SCO payment would be based on the difference between actual county revenues and 86% of expected revenues capped by the coverage elected by the farmer. Premiums for this coverage will be released by the Federal Crop Insurance Corporation (FCIC) in time for coverage beginning in 2015 (there is no SCO option for the 2014 crop year).
A farmer will need to run the numbers, however, without knowing the premium until the 2015 crop year and the requirement that you cannot elect SCO if you elect ARC, a farmer will need to run the numbers to see if PLC plus possible SCO coverage for only four years of the Farm Bill is worth it or not. Remember, the farmer must make a one-time election to opt into ARC. If they do not make the election, they are automatically enrolled in PLC (plus SCO availability).
The FCIC will begin to develop a crop margin coverage option targeting rice growers in 2015 as the initial option for coverage. There will also be separate enterprise units for irrigated and non-irrigated crops beginning in the 2015 crop year.
Beginning farmers and ranchers are eligible for increased premium subsidies by 10%. Beginning in 2015, farmers who have both irrigate and non-irrigated crops can elect different coverage levels. This would allow them to elect a higher coverage amount on the more variable crop (usually non-irrigated).
A more detailed analysis of crop insurance options and other farm bill provisions is available here.
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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