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Crop Insurance Series: SCO · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_00: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_00: If you want a deep dive into the ag markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_00: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_00: This is your host, Mike Minor.
• 0:22
  SPEAKER_00: Let's get started.
• 0:23
  SPEAKER_00: Today is February 22nd.
• 0:25
  SPEAKER_00: I've got Lucas Peters back with us today.
• 0:28
  SPEAKER_00: How's it going, Lucas?
• 0:29
  SPEAKER_00: It's going well, Mike.
• 0:30
  SPEAKER_00: Good deal.
• 0:31
  SPEAKER_00: Well, let's talk about the second part of our series here today.
• 0:35
  SPEAKER_00: Let's talk about SCO.
• 0:37
  SPEAKER_00: We're going to get right into it, Lucas.
• 0:39
  SPEAKER_00: And I have a feeling this is going to be a little bit different conversation than probably the last two years I've had with you on SEO.
• 0:46
  SPEAKER_01: Boy, you got that right, Mike.
• 0:47
  SPEAKER_01: So let's start with kind of what SCO is.
• 0:51
  SPEAKER_01: What in the world is it?
• 0:52
  SPEAKER_01: Yeah.
• 0:52
  SPEAKER_01: So supplemental coverage option or SCO has been around for a few years and it's a it's an optional coverage through your crop insurance agent or added onto your crop insurance coverage.
• 1:08
  SPEAKER_01: And what it does, it covers you on a county level from where your base policy stops up to 86%.
• 1:20
  SPEAKER_01: And so what's that all mean?
• 1:21
  SPEAKER_01: Well, we just talked about revenue protection yesterday.
• 1:25
  SPEAKER_01: And so if I'm buying an 80% revenue protection policy, and I buy an SEO policy, the SEO coverage is from 80 to 86%.
• 1:36
  SPEAKER_01: But uh the key difference there on that SEO coverage is that's going to be based off the county yield performance.
• 1:43
  SPEAKER_01: It's going to use the same prices as my revenue protection.
• 1:46
  SPEAKER_01: So we're going to set the price in February and a fall price in October.
• 1:51
  SPEAKER_01: Um, but the yield is going to be based off an expected county yield and then a final county yield.
• 1:58
  SPEAKER_01: And the calculations for determining the revenue are the exact same as a revenue protection.
• 2:03
  SPEAKER_01: We get a yield and a coverage and a price, and we can determine if we have a revenue loss.
• 2:09
  SPEAKER_01: The other thing with SEO to keep in mind is that uh since it is a county coverage, we don't get the county final yield until the next summer.
• 2:20
  SPEAKER_01: So if uh so to your point, uh how we opened this in 2023, I was a pretty big fan of SEO, and and we'll talk a little bit why here in a bit.
• 2:32
  SPEAKER_01: Uh, but uh I think SEO is gonna have a lot of claims for 2023, but the customers that bought SEO aren't gonna see their claim check until the last week of June in 2024.
• 2:45
  SPEAKER_00: Uh something that I mean you re-buy crop insurance before that.
• 2:50
  SPEAKER_01: Exactly.
• 2:50
  SPEAKER_01: So, you know, we have to be signed up by March 15th, and we're still waiting for checks to show up from 2023.
• 2:58
  SPEAKER_00: Uh how good of an idea do you have on what that check is?
• 3:02
  SPEAKER_01: And so the only variable we have for last year's coverage that that we don't know for certain is the county yield, because that's the the data point that gets released last.
• 3:13
  SPEAKER_01: We know the expected yield, we know the projected price, we know the final price.
• 3:18
  SPEAKER_01: For a county yield, we uh we have a pretty good idea what we think the county yielded, right?
• 3:23
  SPEAKER_01: Uh the crop is harvested.
• 3:25
  SPEAKER_01: Um, so we can make some educated guesses, and that's why I think because of the revenue loss, a lot of our SEO customers, or if you bought SEO last year, you're gonna get a claim check for most of our counties in in Minnesota, for example.
• 3:39
  SPEAKER_01: Okay, so so SEO is good, it uses the crop insurance prices, and it gets paid off of your uh planted acres.
• 3:46
  SPEAKER_01: Now, the other thing to watch out on SEO is it has a farm program tie-in.
• 3:52
  SPEAKER_01: Uh so for your farm program decisions at FSA, your ARC and PLC, uh, you cannot have ARC uh policy, ARC signed up for at FSA and by SCO.
• 4:04
  SPEAKER_01: Uh you have to be signed up for PLC.
• 4:06
  SPEAKER_00: They work pretty much the same, right?
• 4:08
  SPEAKER_01: And so that's the reason why we can't have ARC and SEO is the fact that uh they have the same trigger point at 86% based off of uh the 86% of the county revenue.
• 4:18
  SPEAKER_01: And since they're so similar, they should have similar payouts.
• 4:21
  SPEAKER_01: That's why they don't allow you to buy them both or have both of them on in the same crop year.
• 4:27
  SPEAKER_01: And so last year we were a big fan of SEO uh because we got to use a really high spring crop insurance price of$5.91 on corn,$13.76 on beans.
• 4:37
  SPEAKER_01: It was way higher than where ARC was.
• 4:40
  SPEAKER_01: It felt like a good opportunity to get some protection at a pretty decent coverage price or a premium price, right?
• 4:47
  SPEAKER_01: So if I'm at 80% on crop insurance, my SEO coverage is probably five to eight bucks an acre, depending where I'm at and uh what uh what crops I'm I'm insuring with SEO.
• 4:59
  SPEAKER_01: Um this year it's it's a little bit of the opposite.
• 5:02
  SPEAKER_01: My ARC price, which we'll talk about ARC and PLC uh tomorrow, uh is 485 on corn.
• 5:08
  SPEAKER_01: That's significantly higher than where the board is right now, higher than where our crop insurance price is gonna be.
• 5:14
  SPEAKER_01: I kind of want to keep my ARC county uh in 2024, and I'm gonna put SEO back on the table and not sign up for SEO in 2024 as a general rule.
• 5:25
  SPEAKER_01: Uh the exception to that rule would be if I'm in if I'm buying lower levels of crop insurance in that 70-75% range, and and I'm looking for higher coverage, but don't want to spend as much premium on my individual policy, SEO can be a cheaper option to get you up to 86%.
• 5:44
  SPEAKER_01: Uh but again, for most of our guys, I'm gonna say we're gonna leave SEO alone and we're gonna sign up for Art County.
• 5:51
  SPEAKER_01: Uh, and that's for 2024.
• 5:53
  SPEAKER_01: The nice part about both these decisions, crop insurance and farm program, it's an annual decision.
• 5:58
  SPEAKER_01: And I have a feeling next year we might uh be looking more at PLC payments uh or PLC signing up for, and then of course that opens up the SEO discussion again.
• 6:09
  SPEAKER_01: But that will be for a year from now, Mike.
• 6:12
  SPEAKER_00: All right, sounds good.
• 6:13
  SPEAKER_00: In the next series, we're gonna talk a little bit about ARC and PLC and dive deeper into those, as we previously mentioned here.
• 6:21
  SPEAKER_00: And thank you to all our listeners.
• 6:23
  SPEAKER_00: Please reach out to us at professionaleggmarketing.com.
• 6:26
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 6:32
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 6:38
  SPEAKER_00: See you next time.