The Supplemental Coverage Option (SCO) is an additional insurance product offered through the USDA’s crop insurance program that provides farmers with extra protection against yield or revenue losses caused by natural disasters or adverse market conditions. SCO is designed to complement a farmer’s underlying crop insurance policy by covering a portion of losses not fully insured by the basic policy.
How the Supplemental Coverage Option Works
SCO covers a portion of the loss between 86% and the coverage level selected in the underlying crop insurance policy. For example, if a farmer purchases a crop insurance policy with 70% coverage, SCO can provide additional coverage from 70% up to 86%. This “gap” coverage helps reduce the financial risk in situations where losses exceed the base policy’s coverage but are not total losses.
SCO is available for many major crops and is offered on a county-wide basis, meaning it uses county-level yield or revenue data to determine losses rather than individual farm results. Farmers pay a premium for SCO, but the USDA subsidizes a significant portion, making it an affordable option for increasing coverage.
How Supplemental Coverage Option Works: A Real-World Example
Consider a corn farmer in Nebraska who purchased a crop insurance policy with 70% yield coverage for the 2023 season. Due to a severe drought, the county experienced a significant yield loss, triggering SCO coverage.
If the county-level loss triggered SCO payments, the farmer would receive payments to cover losses between the 70% level (underlying policy) and the 86% level (SCO coverage). For instance, if the actual county yield was 65% of the county average, the farmer’s losses would exceed their base policy coverage but fall within the SCO coverage range.
Here is a simplified calculation:
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Underlying policy covers losses up to 30% (100% – 70%)
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SCO covers additional losses up to 14% (86% – 70%)
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Actual loss: 35% (100% – 65%)
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SCO covers losses beyond the base policy: 35% – 30% = 5% of yield
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The farmer receives SCO payment for that 5% loss on the insured acres.
This extra coverage helps the farmer recover a portion of losses that would otherwise be uncovered by the base insurance, providing additional financial stability during challenging conditions.
Key Features of the Supplemental Coverage Option
SCO’s main benefit is filling the gap between a farmer’s base crop insurance coverage and the 86% coverage level on a county basis. It does not replace the underlying policy but supplements it. Because SCO uses county-level data, there may be situations where individual farm losses exceed the county losses, meaning SCO payments may not fully cover a farmer’s actual losses.
SCO premiums are partially subsidized by the USDA, making it a cost-effective way to increase coverage. However, farmers must purchase SCO at the same coverage level or less than their underlying crop insurance policy.
Enrollment and Risk Management
Farmers must elect SCO coverage during their annual crop insurance signup period. It is important to evaluate the benefits of SCO in combination with existing crop insurance and other farm safety net programs to develop a comprehensive risk management plan.
Conclusion
The Supplemental Coverage Option offers farmers a valuable way to increase protection against crop losses by covering part of the gap between their base crop insurance coverage and higher coverage levels. The Nebraska corn farmer example shows how SCO can provide meaningful financial support in adverse conditions that partially exceed base policy limits. For producers seeking to strengthen their risk management strategies affordably, SCO is a practical and effective tool to consider.
