Further discussion of the supplemental coverage option
Examples for SCO and an Individual Plan of Insurance
If county losses exceed 14% SCO payments are triggered for all producers carrying the supplemental coverage in that county. The magnitude of county level losses will be translated to an individual farm SCO payment via an SCO payment factor applied to the farm's maximum SCO payment representing the portion of the deductible covered by SCO (from 86% down to the individual coverage level).
This payment factor scales the loss experienced at the county to a percentage of the deductible range covered by the SCO policy given the individual plan selected by the farmer. Multiplying this payment factor by the size of the farm's deductible range covered by SCO (the max SCO payment) yields the SCO payment received by the farm.
click image to zoom Table 1 illustrates some example insurance program calculations for corn for two individual farm cases. Both farms are located in a county with an area trend corn yield of 180 bushels per acre. Example farm 1 has a trend adjusted APH (TAPH) yield above the county average of 190 bushels per acre while farm 2 has a TAPH yield of 170 bushels per acre. This results in a county level expected revenue of $828 per acre, and farm-level expected revenues of $874 and $782 per acre for farms 1 and 2, respectively.
We provide example calculations assuming SCO is coupled with an RP-HPE policy with an 80% coverage level. An RP-HPE policy at 80% coverage implies revenue guarantees of $699 and $629 per acre for farms 1 and 2, respectively. The SCO county trigger revenue (86% of expected revenue) is $712 per acre. The maximum amount of coverage that SCO would provide each individual farm for this example is the portion of each farm's deductible falling between 86% and 80% of expected revenue, or 6% of expected farm revenue. The maximum SCO payment that farm 1 could receive is $52.44 per acre (0.86 - 0.80 = 0.06; 0.06 x $874 = $52.44). The max SCO payment that farm 2 could receive is $46.92 per acre.
click image to zoom In table 2 an example is provided where the harvest price is $3.90 and the actual county yield is 180 bushels per acre. This results in actual county revenue of $702 per acre, and an SCO payment rate of 0.20. Again, this payment rate represents the revenue loss at the county level as a percentage of the deductible range covered (in this case from 86% down to 80% of expected revenue).
click image to zoom This payment factor of 0.20 means that the loss at the county level will trigger individual SCO payments covering 20% of the deductible range covered for individual farms carrying SCO with 80% RP-HPE. This payment rate would differ for farms carrying different individual insurance plans and coverage levels coupled with SCO.
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