Crops > Costs & Returns > Crop Insurance
Written August, 2022
File A1-53
Margin Protection (MP) Crop Insurance
Margin Protection (MP) crop insurance is an area-based plan, using county yields and can be purchased annually for acres to be planted to corn, rice, soybeans, and spring wheat the following year in select states and counties. MP coverage is protection against an unexpected decrease in operating margin.
Revenue (Yield × Price) - Costs = Margin
An MP indemnity is paid when the actual margin falls below the trigger margin. Since MP utilizes county-based yields, it is possible to experience a farm-based loss but not trigger an MP indemnity payment, or vice-versa.
An MP policy can be purchased as a stand-alone policy, or with a Multi-Peril Revenue or Yield Protection policy (denoted as a base policy) on the same crop acres. For corn and soybeans, the base policy uses farm-based yields with a price discovery period during the month of February and a sales closing date of March 15. However, the MP policy uses county yields with a price discovery period nearly six months earlier, mid-August through mid-September, with a sales closing date of September 30 of the calendar year prior to the crop year. MP indemnities, if triggered, are paid between mid-June and mid-July of the calendar year following the crop year.
How Margin Protection Works
Projected prices for a Revenue Protection (RP) base policy and an MP policy use the same December corn futures and November soybean futures market prices. Harvest prices are determined for both policies using the same futures trading months, but the simple average price is determined during the month of October.
Variable input costs changes for an MP policy are reflected by diesel fuel, interest rates, and fertilizer costs (diammonium phosphate, plus urea for corn) and compared the following April. These costs are calculated by the Risk Management Agency (RMA) using national average prices.
Figure 1 features Revenue Protection as the underlying base policy with up to an 85% coverage level for the insured crop. The MP coverage can be purchased up to the 95% coverage level.
Premium Subsidy
MP offers the same premium subsidies as other existing area-based plans, which vary by coverage level including:
- For 70% coverage, the subsidy factor is 59%.
- For 75% and 80% coverage, the subsidy factor is 55%.
- For 85% coverage, the subsidy factor is 49%.
- For 90% and 95% coverage, the subsidy factor is 44%.
Beginning farmers qualify for an additional 10% subsidy factor across all coverage levels.
Protection Factors
When purchasing an MP policy, a specific Protection Factor must be elected for that policy. A Protection Factor can range from 80% to 120% in 1% increments.
MP and the Underlying Base Policy
The base policy and the MP policy must be purchased from the same Approved Insurance Provider (AIP); however, the base policy and the MP policy may be purchased from a different insurance agent or insurance agency. When an insured buys a base policy, they may receive a credit to their MP premium because indemnity payments from the base policy are used to offset indemnity payments from the MP policy. To receive a premium credit, the base policy type and practices must match the type and practices elected on the insured’s MP policy.
MP can be purchased with a Harvest Price Option (MP-HPO). In this case, the higher of the MP projected crop price and the harvest price will be used in the calculation of the trigger margin.
MP Indemnity Payments
Potential margin losses could be associated with reduced county yields, a decline in commodity futures prices, increased costs of certain inputs, or any combination of these perils. Since MP uses county-based yields, the MP indemnity payment is not known until the Final County Yield is determined by RMA as the acre-weighted average yield within the county as provided by insured producers. RMA is expected to publish Final County Yields for corn and soybeans in Iowa on or before June 16 of the year following the production of the insured crop (ex. June 2023 for the 2022 crop).
If an MP indemnity payment is triggered, the insured will receive a payment. Payment will be equal to the difference between the MP indemnity amount and the largest of the base policy indemnity payment and the MP credit received in the fall of the insured crop year.
Calculating MP Coverage
Examples of MP coverage and policy for corn are featured in Steps 1 through 3 in Example 1 and with the Harvest Price Option in Example 2.
Advantages of MP Coverage
Some of the advantages of the purchase of an MP policy along with the base policy on the same crop acres include:
- Higher coverage levels and protection factors available.
- Subsidy factors that range from 44% to 59%.
- Protects against a decline in margin, not just a drop in yield and/or futures price.
- Provides for an earlier discovery period for the projected price (other than the month of February).
Disadvantages of MP Coverage
Some of the disadvantages of purchasing an MP policy along with the base policy on the same crop acres include:
- MP purchase decision must be made on or before the September 30 sales closing date.
- An additional premium will be charged for the MP policy, along with an MP administrative fee.
- Understanding how the MP coverage interacts with the base policy.
- Not knowing the final MP indemnity until mid-June, more than six months following harvest.
- Individual farm revenues and input costs are not considered under MP, and it is possible an individual farm may experience reduced revenue or increased costs and not receive an indemnity under MP.
- A Supplemental Coverage Option (SCO) or an Enhanced Coverage Option (ECO) policy cannot be purchased for the crop if the insured has a Margin Protection or an Area Risk Management Protection Insurance policy.
Timing of Events
Twenty-one months separate the closing date to purchase MP and the date when final MP indemnities are calculated. It is important to understand the timing of events with MP:
- September 30, prior to crop year: closing date to purchase MP
- March 15 of the crop year: closing date to purchase base policy. If a base policy is purchased, insured has the potential to receive a credit on the MP premium.
- August 15 of the crop year: premium billing date for both the base and MP policies.
- Fall of crop year: insured receives greater of MP credit or base policy indemnity (not both).
- The MP premium must be paid by November 15 in order to retain coverage for the following crop year.
- December 10 of the crop year: last day to file notice of crop damage for base policy (or 15 days after end of crop, whichever comes first).
- February 15 after crop year: report harvest yields if MP is purchased as a stand-alone policy.
- April 29 after crop year: report harvest yields for base policy if MP is purchased along with a base policy.
- June 16 after crop year: RMA releases Final County Yields.
- July 16 after crop year: deadline to issue MP indemnity payment (net of base policy indemnity payment or MP credit received in fall of crop year).
Before Purchasing MP
Consult a crop insurance agent to determine if MP best meets the insured’s risk management needs and for detailed price quotes. Quick estimates of MP premiums can be obtained from the USDA Risk Management Agency Margin Protection Premium Estimator and Price Discovery, and to see prices published daily during the price discovery period.
Resources
Margin Protection for Federal Crop Insurance - Risk Management Agency Fact Sheet
Ag Decision Maker Crop Insurance Publications
Margin Protection Crop Insurance Frequently Asked Questions
Alejandro Plastina, extension economist, 515-294-6160, plastina@iastate.edu
Steven D. Johnson, retired extension farm management field specialist
