MARGIN PROTECTION

How it Works

• The popular Revenue Protection insurance focuses on the revenue side of your balance sheet, but does not protect you against unexpected increases on the input cost side.
  
  That’s where Margin Protection comes in.

How it’s calculated

• While the revenue formula is relatively simple (Yield x Price = Revenue, using the higher of the February or October price average), cost calculations are slightly more complex.
• Costs are not based on the producer’s own costs; they are calculated by RMA, based on input prices from August 15-September 14. These include:
  • Variable inputs (diesel, NPK, interest rate)
  • Costs that are covered but do not change (seed, lubrication, select crop protection)
• Note that land, rent and labor are not included.

Revenue and Margin Formula

Dual-coverage delivers flexibility

• Combining MP with other coverage options offers added flexibility.
• You are able to base decisions on price guarantees in September, February and October. MP locks in the futures price in the fall, when the market typically rewards delaying sales.
• You can purchase MP with either ARC or PLC.
• MP is based on county yields, prices and inputs. This means indemnities are not paid until after USDA determines county yields – roughly six months or more after harvest.
• If you have a claim on your individual RP policy, you receive that indemnity more promptly. But – you receive the higher of the two claims. Given a smaller “deductible” with a 95% policy, and the impact of the protection factor, MP may beat RP and you’ll receive the balance of the indemnity later.

Other ways MP and RP work together

• MP offers higher coverage up to 95%.
• MP does not cover prevent plant, replanting or quality adjustment; RP does.
• RP and MP together provide peace of mind and protection for both individual risk protection and area coverage for the expected operating margin.
• Analysis of history suggests an advantage over the long run to purchasing both.