For many producers, crop insurance is about minimizing the impact of yield loss from changing weather. Increasingly, producers are adopting risk management products that protect revenue from changing markets.
The popular Revenue Protection plan, for example, insures against losses impacting the revenue side of the balance sheet, but what happens when losses are triggered by rising input costs?
Margin Protection is the only crop insurance coverage option that protects producers against tightening margins.
In this article, we review some of the most frequently asked questions about Margin Protection to help you determine if this coverage is right for your operation.
What is Margin Protection?
Margin Protection provides coverage against an unexpected decrease in operating margin (revenue minus input costs) caused by reduced county yields, reduced commodity prices, increased input prices or any combination of these perils.
Because Margin Protection is an area-based product, payouts are made using county-level yield estimates. An individual farm may have a decrease in margin but not receive an indemnity and vice versa.
How does Margin Protection work?
Margin Protection provides coverage that is based on an expected margin for each applicable crop, type and practice, where:
Expected Margin = Expected Revenue – Expected Costs
- Expected revenue (per acre) is the expected county yield multiplied by a projected commodity price.
- Expected cost (per acre) is the dollar amount determined by multiplying the quantity of each allowed input by the input’s projected price.
Where is Margin Protection coverage available?
In 2023, the USDA expanded where Margin Protection is available. It’s available for corn in select counties across the nation, for soybeans in 34 states and for wheat in select counties in Minnesota, Montana, North Dakota and South Dakota. To see maps of Margin Protection coverage, visit the RMA website.
What is the sales closing date for Margin Protection?
The Margin Protection sales closing date for corn, soybeans, and spring wheat is September 30 of the calendar year prior to insured crop year.
What inputs are covered with Margin Protection?
When determining the margin, two types of inputs are considered.*
Corn: diesel fuel, interest, diammonium phosphate (DAP), potash**, urea
Soybeans: diesel fuel, interest, DAP, potash**
Wheat: diesel fuel, interest, monoammonium phosphate (MAP), potash**, urea
While fixed-price inputs impact the amount of insurance coverage, only price changes for variable inputs determine whether an indemnity is paid along with county yield changes and changes in price for the commodity.
Corn: preharvest machinery, seed, lime, herbicide, insecticide
Soybeans: preharvest machinery, seed, lime, herbicide
Wheat: seed, maintenance, chemicals, lubrication
*Land, rent and labor costs are not included.
**The price of potash won’t change from fall to spring because there is no current viable trading market.
What is Margin Protection with the Harvest Price Option?
Margin Protection elections come in two forms: with harvest price option and without.
The Harvest Price Option allows you to include replacement cost coverage under the Margin Protection policy. Similar to many popular revenue-based polices, if the harvest price is greater than the projected price, the expected margin and the trigger margin are recalculated based on the higher harvest price.
Can Margin Protection be purchased by itself or in conjunction with other eligible insurance plans?
Margin Protection can be purchased by itself, or in conjunction with a Revenue Protection or Yield Protection policy purchased from the same Approved Insurance Provider (AIP) that issued the Margin Protection policy.
Your Farm Bill program election does not limit your ability to purchase Margin Protection; it can be purchased with either Agriculture Risk Coverage (ARC) or Price Loss Coverage (PLC).
How do Margin Protection and Revenue Protection work together to expand protection against potential losses?
Compared to Revenue Protection, Margin Protection offers higher coverage up to 95%. However, Margin Protection does not cover prevented planting, replanting or quality adjustment, but Revenue Protection does.
Additionally, Margin Protection locks in the futures prices in the fall, which provides an earlier time frame to establish minimum guarantees.
Together, Revenue Protection and Margin Protection provide peace of mind and protection for both individual risk and area coverage for the expected operating margin. Historical analysis suggests there is an advantage over the long-run to purchasing both.
Will the full premium for both policies be owed if Margin Protection is added to a base policy?
A premium credit is applied to Margin Protection when purchased with an underlying policy such as Revenue Protection or Yield Protection. The amount of the premium credit will depend on the producer’s historical unit yields relative to the county yields for the same years.
Premium credits apply only if the base policy and Margin Protection policy are for the same person or entity. The premium credit is determined when all information needed to establish liability under the base policy is known, which is after the approved yield has been established and the acreage report filed.
What are the coverage levels and premium subsidies for Margin Protection?
Coverage levels for Margin Protection range from 70%-95% of your expected margin. The protection factor ranges from 80%-120% and is applied to the indemnity.
Margin Protection offers the same premium subsidies as other area-based plans, which vary by coverage level.
|75% & 80%||.55|
|90% & 95%||.44|
How are loss payments for Margin Protection calculated?
A payment may be made when the harvest margin for the county is lower than the trigger margin due to a decrease in revenue and/or an increse in input costs.
When are losses paid?
Margin Protection 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.
Backed by a team of highly trained specialists and exclusive crop insurance technology, Frontier Farm Credit has the tools and resources to help you make confident and informed decisions whatever your risk management goals.
To start a conversation about adding Margin Protection to your operation, reach out to your Frontier Farm Credit insurance officer at 800-397-3191 or complete a request form.