What Is Margin Protection Crop Insurance?
Margin Protection (MP) might be a fit for your operation if:
You want to protect your operating margin (difference between expected revenue and expected costs)
You are interested in 95% coverage levels on a federally subsidized product
You want a county-based revenue policy, but you don't want to give up prevent plant coverage
Growers can use Margin Protection to lock in margin, with a highly subsidized insurance product, and without physically locking in any grain sales or input purchases.
MP is a great choice for farmers whose yields are consistently in line with county yields, and who would like a county-based policy without having to give up their preventive plant or replant coverage. Since MP is well subsidized at the highest levels of coverage, it is also a good choice for those who are interested in 95% coverage level.
Each year the number of MP policies written increases, as producers see the benefits of higher coverage levels.
Understanding the Mechanics of Margin Protection
With MP, the crop yields are based on county data, crop prices are based on futures markets and input costs are based on regional prices. The policy also takes into account a variety of factors, including changes in crop prices, reductions of yields and changes in the prices of inputs used to grow the crop. MP uses the same harvest prices as Revenue Protection (RP), but bases its 2020 expected county yields on historical RMA data for the county. In the past, this was based on NASS data. Coverage levels can range from 70-95 percent.
Farmers also have the option to choose between MP and MP with the Harvest Price Option (HPO). The HPO provides protection on loss at the higher of the price projected before planting or the price at harvest. Farmers can also choose to buy a base policy—such as Revenue Protection or Yield Protection—and get a credit on the MP premium, allowing them to receive protection from the greater of losses.
By the sales closing date, you make the decision of whether to choose MP or MP with HPO. You also have to select your coverage Level and Protection Factor. It is also important to note that the MP policy and base policy must be written (or transferred) with the same company at the time the MP policy is purchased.
What Are the Expected Costs?
MP doesn’t measure growers’ actual costs. Assumptions are made based on regional agronomic conditions to establish the quantity of key inputs. These are based on the Expected County Yield and the volume of an input needed to grow a bushel.
So what are your expected costs? These can include variable costs, such as fuel, nitrogen, phosphorus, potassium and interest; alongside fixed costs, such as seed, machinery and other operating costs.
How to Calculate Margin Protection
Here’s an example of how this works:
Restrictions on Margin Protection
There are some restrictions on MP. It cannot be coupled with catastrophic (CAT) or other area-based coverage, and MP acres cannot be high risk acres excluded from a CAT policy. MP also cannot be used on acres covered by a High Risk Alternate Coverage (HRACE) base policy.
Also, there is no Prevented Planting or Replanting coverage with MP, but it can be supplemented through another base policy that includes it.
It is also important to note that payments are made in the spring of the following year after county yields are released, so cash flow would need to be managed to account for this. However, adding an RP base policy would allow for that part of an overall indemnity to be paid once the individual loss is calculated.
Sales Deadline for Margin Protection
Margin Protection for 2020 crop year must be purchased by 9/30/19 for corn, soybeans and spring wheat. Check with your agent for area-specific dates and details for rice.
Learn More About Margin Protection
In this 30 minute webinar, FBN Director of Crop Insurance Eric Sorenson discusses the benefits and drawbacks of taking a Margin Protection policy.
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The purpose of these materials is to promote awareness of risk management concepts and to highlight risk management products, features, benefits and availability. This presentation does not provide full details of policy provisions or approved procedures. Producers should consult with a local agent for specific details and program requirements.
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