News & Resources

Risk Management Modifications for 2025

24 Jan 2025

MT. JULIET, Tenn. (DTN) -- Revenue protection crop insurance guarantees are likely to fall below most corn and soybean farmers' cost of production again this year. However, farmers can create risk management plans that come close at a relatively affordable price, thanks to changes in several programs.

USDA's Risk Management Agency increased the subsidy rate for the Enhanced Coverage Option (ECO) from 44% to 65% starting in 2025, which makes the plan's high-level of coverage, up to 95%, significantly more affordable.

Also at work is the farm bill's Olympic averaging, which raised benchmark prices for the Agricultural Risk Coverage (ARC) program and escalator clause for reference prices in the Price Loss Coverage (PLC) program. For corn and soybean producers, these higher levels of support greatly increase the likelihood of payments for the 2025 crop year.

"This is not the year to wait until March 15 for the crop insurance or April 15 for ARC/PLC decision," said Steve Johnson, a consultant and retired Iowa State University crop insurance specialist. He added there are multiple interactions between subsidy levels and farm bill safety net programs to consider. In an interview with DTN, he urged farmers to start talking to their agents now and lock their choices in as soon as they're made.

REVENUE PROTECTION INSURANCE GUARANTEES WON'T COVER ALL COSTS

Brandon Pezanoski, a state insurance product officer at Compeer Financial, warned in a webinar that sticking with the same crop insurance plan isn't going to cover expenses this year. He grew up on a farm in LaSalle County, Illinois, and used that as the basis of his example. In 2023, a 75% revenue protection policy with an actual production history (APH) corn yield of 230 bushels per acre (bpa) had a revenue guarantee of more than $1,000 per acre. On a similar policy in 2025, the guarantee will be closer to $750 per acre, assuming a $4.40 projected price. He made the projections before the January WASDE.

Recent crop budgets from University of Illinois's Farmdoc team put total non-land expenses for high productivity land in central Illinois at $747 per acre of corn. It pencils in $278 for operator and land return, but notes that average cash rents are higher than that at $339 per acre, meaning farmers with rent to pay are looking at a $61-per-acre loss.

"How much risk do you want out there on the table? It's not a year to just renew as is. You need to look at where you need to be in 2025," Pezanoski said. With RMA'S recent change to ECO subsidies, it's possible to buy up to higher levels of coverage without "breaking the bank."

UNDERSTAND DIFFERENT COVERAGE LEVELS

Most corn and soybean farmers purchase revenue protection (RP) insurance that covers between 70% and 85% of their anticipated revenue, which is calculated using their operation's actual production history (APH) yield and a projected price -- the average daily close of the December corn or November soybean futures contract during February.

There are three federally subsidized programs that allow farmers to buy higher levels of revenue protection: margin protection, the Supplemental Coverage Option (SCO) and ECO. They're used in addition to an RP policy, but they're all based on county average yields, so it's important to consider the farm's yield history in comparison to county level estimates. Indemnity payments will also take longer to arrive, usually mid-June of the following year, because RMA must finalize county yields first.

Margin Protection has a very early price discovery window that closed in September 2024 for the 2025 crop. The two products farmers can purchase this spring are ECO and SCO, and a key difference between them is how it affects your ARC/PLC decision.

SCO allows farmers to buy county-level revenue coverage ranging from 75% to 86%, but they can only elect SCO on farms enrolled in PLC.

ECO provides a band of revenue coverage between 86% and the farmer's choice of 90% or 95%. Farmers can enroll in ECO regardless of their ARC/PLC choice.

Farmers who choose PLC as a farm program can buy both an SCO and an ECO policy. These add-on products are used in addition to an RP policy.

Farmers who elect SCO can also stack an ECO policy on top, creating a larger revenue guarantee.

While ECO has only been available for farmers since 2021, Pezanoski said historical analysis shows 95% coverage would have paid out frequently, often triggering on price declines alone. It can also be triggered by yield declines. For every $1 a Minnesota farmer would pay in, the program would pay out $1.57.

Johnson said there's significantly more interest in ECO now that RMA has raised the premium subsidy to 65%.

"It's cheaper than it's ever been," he said, adding that farmers' out-of-pocket premiums for ECO will be about 40% less than last year. Revenue protection premiums will also be down this year at the same level of coverage and APH "but for the wrong reason: the projected prices are going down."

HOW SUBSIDY DIFFERENCES CHANGE PREMIUMS

Johnson said there's an important interaction between RP coverage levels and premium subsidies to consider in 2025. For a farm using enterprise units, the government pays 48% of the premium on an 80% policy, but only 38% for an 85% policy. "The farmer pays a larger percentage to get higher levels of coverage," Johnson explains.

He explained how farmers could achieve very similar levels of revenue guarantee, of around $850 per acre on corn, at very different expenses using a hypothetical Boone County, Iowa, farm with a 200-bpa APH corn yield. He estimates premiums using a $4.41 per projected price and 19% volatility factor, two numbers that will be finalized when the price discovery period closes in February. Neither he nor Pezanoski anticipate changes that would make substantial differences in premium estimate.

The farmer-paid insurance premium for an 85% RP policy would be $21.93, compared to $11.31 for an 80% policy. The premium on a 95% ECO policy is the same in each scenario at $13.89 per acre.

Total premiums for 85% RP coverage and ECO covering up to 95% would be $35.82 per acre, while an 80% RP policy with 95% ECO coverage would cost $25.21 per acre.

"The question becomes: Do I really want to add SCO?" Johnson said. Farmers do not have to purchase SCO in order to buy ECO, but they can stack the two programs if they enroll in PLC.

For an 85% RP policy, SCO would only cover 1% and cost about $1.03 per acre. On an 80% policy, it'd cover 6% and cost $5.02 per acre. Because SCO limits farm bill program choice, Johnson thinks farmers may want to consider leaving a gap between the top of their RP policy coverage and ECO because ARC shows a higher likelihood of payments in 2025.

FARM BILL PROGRAMS POISED FOR PAYMENTS

The ARC and PLC programs haven't been much of a factor in recent years because of high commodity prices, but they're more relevant this year because the benchmark and reference prices are moving higher and commodity prices are low.

ARC-County benchmark prices, which are calculated using an Olympic average, for corn and soybeans in the 2025-26 marketing year are the highest they've been since 2015-16, according to a report from Terrain. For corn, it's $5.03 per bushel, 18 cents higher than last year. The benchmark price for soybeans is $12.17 per bushel, $1.05 more than last year. ARC begins to pay when county-level revenue falls below 86% of the revenue guarantee (the benchmark price x the county average yield). Effectively, it will start making payments if the marketing year average price falls below $4.33 for corn and $10.47 for soybeans.

PLC pays only when the marketing year average price falls below the reference price, which is $4.26 per bushel for corn and $9.66 for soybeans.

Most corn and soybean producers already enroll in the ARC-County program, and Johnson said that's likely to be the best choice for the 2025 growing season unless a farmer wants to buy the Supplemental Coverage Option (SCO).

"Depending on where your operation is financially, what you need to be covered for, and what risk you have, you can tailor a plan based on where you currently sit. It's not going to be the same for everyone," Pezanoski said.

The key to success in 2025 will be a focus on maximizing profitability, not yields. He suggests scrutinizing fertilizer application rates and other input prices to find cost savings.

"Crop insurance is less than 5% of your total cost of production per acre," he said. "Is that where you need to be looking to cut costs? I don't think so."

ARC and PLC enrollment opened up Jan. 21 and goes until April 15. The deadline for crop insurance decisions is March 15.

"Give a farmer a deadline, and they'll show you how close they can come to it," Johnson said. "If you're not going to buy SCO, then just go ahead and enroll in ARC County, especially if you're looking at corn and soybean base acres, just like you have the last 12 years."

He adds that the Farm Services Agency has seen a wave of retirements, so making decisions early can save you time and help with staff workloads.

"Where would you rather be on April 15? Planting corn or standing in the FSA office to elect ARC or PLC?"

View Pezanoski's full presentation on-demand here: https://pages.compeer.com/…

Farmdoc's crop budgets can be found here: https://farmdocdaily.illinois.edu/…

Farmdoc's analysis of ECO's performance is here:

https://farmdocdaily.illinois.edu/…

Terrain explainer on ARC vs. PLC decision : https://www.terrainag.com/…

Katie Dehlinger can be reached at katie.dehlinger@dtn.com

Or you can follow her on X at @KatieD_DTN

loading