A relatively new crop insurance option that has been added in recent years by the United States Department of Agriculture’s Risk Management Agency (RMA) are “Margin Protection” (MP ). Given the expectation of much higher farm input costs for 2023, as well as some pretty strong projections for commodity prices from 2023 into the fall of 2023, there is currently a bit more interest in the Midwest regarding the potential for using MP crop insurance policies for the 2023 corn and soybean crop.
Margin Protection (MP) is an acreage-based crop insurance plan that provides protection against an unexpected drop in farm production margin (crop income less input costs) and can be purchased up to a coverage level of 95%. The decrease in margin could be caused by a reduction in county average yields or commodity prices, an increase in farm input expenses on certain variable farm input costs, or any combination of these events.
Because MP insurance is based on county-level yields and average input costs, final yield and input costs on an individual farm may or may not result in a crop insurance payout. for a given year. The deadline to purchase Margin Protection crop insurance policies for 2023 is September 30, 2022.
How margin protection works
- MP corn and soybean insurance policies are available in Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio , South Dakota and Wisconsin. Spring Wheat MP fonts are available in Minnesota, Montana, North and South Dakota.
- MP insurance policies use average county yields, like other acreage-based federal crop insurance policies, rather than farm-level crop yields.
- MP insurance determines a minimum margin (or “trigger”), which is determined by the following:
- Expected Revenues (County Yield x Projected Price) minus Expected Costs = “Trigger Margin”
- Projected commodity prices and projected costs for PM policies are determined during a “discovery period” from mid-August to mid-September, with data finalized on September 15, the year before the year of agricultural production.
- The projected price for is the average fall price for the following year (ex. — the projected price for corn and soybeans 2023 was the average price for December 2023 corn futures and soybeans from November 2023) during the discovery period which ended on September 15. Projected prices for 2023 for MP policies are $6.11 per bushel for corn and $13.56 per bushel for soybeans.
- Projected input costs for corn and soybeans are established during the discovery period and are divided into two types of costs:
- Fixed costs — Seeds, chemicals, lime, machinery, etc. (Fixed costs are fixed and do not change.)
- Variable costs (subject to change) — Diesel, DAP, potash, interest and urea (corn only)
- Variable cost projections are set by September 15 but may be adjusted up or down by the RMA the following April, based on actual crop variable input costs. Diesel and fertilizer input costs are based on forward prices for those inputs and interest charges are based on average Federal Reserve interest rates. There may be some variation in crop input costs from county to county and between irrigated and rainfed acreage when determining MP variable costs.
- An MP 2023 insurance policy can be purchased as a stand-alone policy or as a top-up policy to an Income Protection (RP) or Yield Protection (YP) 2023 policy, which uses income level returns. operation. The RP or YP policy for an individual farm unit becomes the basic insurance policy and the MP policy is the “top-up” policy. Producers who hold both a base policy (RP or YP) and an MP supplemental policy will be required to pay the full crop insurance premium on the base policy; however, there will be a premium adjustment on the MP policy depending on the coverage levels selected.
- The federal government subsidizes the purchase of MP insurance policies at a subsidy rate of 55% for MP 75-80% policies, 49% for MP 85% policies, and 44% for MP 90-95 policies. %.
- County RMA crop yields are not finalized until mid-June of the year following harvest, so MP indemnity payments will not occur until then. (Example — 2023 corn and soybean RMA county yields will not be finalized and MP indemnity payments will not occur until June 2024.) In comparison, RP and YP indemnity payments for a given year can be done at any time after the harvest of the commodities. pricing is finalized (November 1 for corn and soybeans) and on-farm performance has been verified.
- It is possible for producers to receive MP compensation, but not RP or YP payment or vice versa, since MP policies are based on county yields and RP and YP policies are based on county level yields. operation. Producers cannot “double” the payouts of the basic insurance policy (RP or YP) and the MP policy. If the producer is eligible for indemnities for both policies, he will obtain the higher of the two policies. If the producer had already received an indemnity payment or an RP or YP policy, which would likely be paid first, that payment amount would be subtracted from the eligible MP indemnity payment if the MP payment amount is higher.
- Benefits of using MP corn and soybean insurance policies for 2023:
- Allows growers to have higher levels of coverage and protection than standard RP and YP policies.
- Includes protection against rising farm input costs, as well as yield and price protection.
- Provides an earlier “price discovery” period (mid-September) for basic corn and soybean insurance prices, rather than the traditional February period for RP and YP insurance policies.
- The federal government subsidizes the premiums for MP insurance policies.
- Cons of Considering Corn and Soybean PM Insurance Policies for 2023:
- The decision for MP insurance must be made before September 30 (the year before planting).
- A crop insurance premium and additional administrative costs will be charged for MP insurance.
- Does not know the status of any claim payments on an MP policy until June of the following year (more than six months after harvest).
- Individual farm yields and farm input costs are not factored into MP “margin” calculations, which could be a factor for some farms when considering MP insurance coverage.
- Growers cannot use Supplemental Crop Option (SCO or Enhanced Coverage Option (ECO)) insurance policies with MP insurance policies because they also insure against county-level yields.
- If growers are not concerned about the cost of inputs or the price protection offered by MP insurance coverage, there may be better alternatives for enhanced insurance coverage with spring-based insurance products. such as SCO, ECO or “complementary” insurance products offered by private insurance. businesses.
- MP insurance coverage can be difficult to understand, especially how MP insurance coverage interacts with the more traditional RP and YP insurance policies.
Margin Protection (MP) insurance policies aren’t right for everyone, but they can fit into some corn and soybean growers’ risk management plan as they plan ahead for the 2023 crop year.
Farmers should consult with a reputable crop insurance agent before deciding to use an MP insurance policy for 2023 to ensure they understand all aspects of MP policies and how MP policies interact with traditional RP and YP insurance policies. Iowa State University has a very good MP insurance coverage fact sheet which includes some sample MP insurance policies titled: “Margin Protection (MP) Crop Insurance” which is available at : extension.iastate.edu/agdm.
For more information, contact Kent Thiesse, Farm Management Analyst and Senior Vice President, MinnStar Bank, Lake Crystal, Minnesota at 507-381-7960 or email@example.com.