The PRF (Pasture, Rangeland and Forage Insurance) policy is an area-based insurance plan that covers perennial pasture, rangeland, or forage used to feed livestock. It provides producers a risk management tool to cover the precipitation needed to produce forage for their operation. This policy is available for all counties in Iowa.
RMA offers seven livestock plans and an annual forage insurance plan. Talk to your crop insurance agent to help you decide the option that is right for your operation, or use the Agent Locator to find one near you.
Contributed by Steve Johnson, Retired Extension Farm Management Field Specialist, firstname.lastname@example.org
Question: What is Margin Protection Crop Insurance?
Answer: Margin Protection (MP) is an area-based insurance plan that provides coverage against an unexpected decrease in operating margin (revenue minus input costs). This decrease could be caused by reduced county yields, decline in commodity prices and/or increased prices of select variable cost inputs or any combination of these perils. Because MP is area-based (county yields), an individual farm may have a decrease in its margin but not receive an indemnity or vice-versa. RMA Frequently Asked Questions
Question: Why does MP have a September 30th deadline to purchase the policy?
Answer: The discovery periods for both the MP projected price and selected variable costs are mid-August through mid-September. Thus, the MP Expected Margin from the Risk Management Agency (RMA) and premiums are not known until after September 15th. MP is typically an add-on, shallow loss product to an underlying base product with individual coverage (Revenue Protection (RP) policy or a Yield Protection (YP) policy).
Question: If I have a base policy and MP, will I owe the full premium for both policies?
Answer: Insureds will owe the full premium as determined from the actuarial tables for your base policy. However, you will receive a premium credit for your MP policy because any indemnity payments from the base policy will wholly or partially offset indemnity payments from the MP policy, reducing the potential indemnity payments under the MP policy. This is the basis for the premium credit. The amount of the premium credit will depend on the producer’s historical unit yields relative to the county yields for the same years. 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.
Question: When will the premium for my 2023 crop MP policy be due?
Answer: September 30, 2023, the same time when the premium is due for the underlying base policy.
Question: If MP crop insurance policies have been around since the 2017 crop year. Why is there so much interest for the 2023 crop?
Answer: The MP projected prices using 2023 crop December corn futures is expected to average nearly $6.00/bushel for the discovery period. The November soybean futures price will likely average more than $13.20/bushel. These record high projected prices create a much larger minimum trigger margin and thus the potential for a potential indemnity.
Question: Can I buy MP with another Federally reinsured crop insurance policy for the same crop?
Answer: Yes, you can buy MP and also buy a Revenue Protection (RP) policy or a Yield Protection (YP) policy (denoted as a base policy) on the same acreage. 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. If you buy a base policy, you will receive a credit to your 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 MP Policy. You may buy any optional coverages or endorsements available for the base policy except the Supplemental Coverage Option Endorsement (SCO) or the Enhanced Coverage Option (ECO). SCO and/or ECO are not allowed to be purchased on the same crop you purchased MP on. Note MP cannot be purchased if you have Whole Farm Revenue Protection (WFRP) policy covering the same crop in the same county.
Question: What are the premium subsidies for MP?
Answer: MP offers the same premium subsidies as other existing area-based plans, which vary by coverage level, as follows:
For 70% coverage, the subsidy factor is 0.59;
For 75% and 80% coverage, the subsidy factor is 0.55;
For 85% coverage, the subsidy factor is 0.49; and
For 90% and 95% coverage, the subsidy factor is 0.44.
Question: Since this is an area-based plan, how are the costs determined?
Answer: Variable costs reflect futures prices for fertilizer and diesel fuel. Interest rates are determined by the 30-day fed fund rate averages. Note that these select variable costs could vary slightly by county.
Question: Do you get both the MPCI and Margin Protection indemnity or the difference?
Answer: You get the higher of the two indemnities. Since the base policy indemnity will be paid out first, that amount could be subtracted from the MP indemnity if the MP indemnity is larger.
Question: When will my agent be able to quote an accurate cost per acre premium for purchasing MP on a crop?
Answer: After Sept. 15th when the projected prices and costs will be determined. The final premium credit will also be impacted by the farm’s APH in the underlying base policy.
Question:If there is an MP indemnity, when are losses paid?
Answer: MP losses are paid when final area (county) yields are available, in the spring of the following year or after June 16.
If an indemnity is due, the Approved Insurance Provider will issue the payment no more than 30 days after the date the final county yield is determined.
Question:What are the inputs used to determine MP coverage and losses? How are they determined?
Answer: Two types of production inputs are specified, those subject to price changes and those that are not subject to price change.
Variable-price inputs subject to price changes are, for example, diesel fuel, interest, and certain fertilizers for which projected prices to the following April are calculated by the USDA Risk Management Agency (RMA). Price changes for these inputs, along with county yield changes and changes in the price for the commodity, determine whether an indemnity is paid. Inputs subject to price change by crop are:
Fixed-price inputs are seed, machinery operating costs (other than fuel), and similar expenses. These inputs affect the amount of insurance coverage, but do not directly determine whether an indemnity is paid. Price inputs not subject to price change by crop are:
Pre-harvest machinery, seed, lime, herbicide, and insecticide costs;
Pre-harvest machinery, seed, lime, and herbicide costs.
Question:Do the variable-price input costs vary by county?
Answer: The cost per acre will vary by county whenever the expected county yield (ECY) differs. Since most counties have slightly different yield values, the variable-price input costs and thus premiums would vary.
Question: Do the variable-price input costs vary between irrigated and non-irrigated acres?
Answer: Yes, when the expected county yield (ECY) differs between irrigated and non-irrigated practices in a county. Note some counties do not have enough irrigated acres so in these situations the RMA will have the same ECY for both practices. In areas where there are more irrigated acres, there will be a different yield between the two practices; thus different variable-price input costs and premiums.
While price reports at a county level are not published, more frequently reported price information can by found on the Iowa Department of Ag and Land Stewardship webpage. This website provides low, high, and average daily prices along with monthly averages for six areas of the state. The daily price is the closing cash grain bids offered to producers as of 2:30 p.m. (Dollars per bushel, delivered to Interior Iowa Country Elevators). The prices available through this website are from USDA Ag Market News. The daily report for Iowa is available at: https://www.ams.usda.gov/mnreports/ams_2850.pdf.
Ag Decision Maker offers resources to assist landowners and producers with determining fair pasture rent arrangements.
Contributed by Melissa O’Rourke, Iowa State University Extension and Outreach Farm and Agribusiness Management Specialist, email@example.com
As cattle producers move cattle off winter feedlots, discussions are taking place regarding pasture rental rates for the grazing season. Iowa State University Extension and Outreach Ag Decision Maker – along with other university extension services – offer guidelines and resources to help Iowa landowners and producers discuss methods to determine appropriate pasture rental arrangements. Especially during these times of increasing land prices and input costs, parties want to be sure that they are having open discussions to arrive at fair agreements for pasture rents.
There is no quick answer to what is the right rent for a given piece of pasture. Parties must discuss and agree on costs and responsibilities such as real estate taxes, maintenance of infrastructure (fence, barns, water), insurance and fertilization. These issues and more are important factors in calculating a fair rental rate.
One key publication is found on the Ag Decision Maker website: Computing a Pasture Rental Rate. When visiting Ag Decision Maker, notice that the publication is available on screen or via download of a PDF document. There is also a Decision Tool spreadsheet that can be used to try out different calculations. The publication starts out by noting:
“Is there a simple and uniform method of figuring a rental rate for pasture and hay land? Probably not, but guidelines are available. There are several methods for computing a pasture rental rate, and several factors that influence the rental rate. Pasture rental rates vary according to the quality of stand, type of forage species, amount of timber, condition of the fences, availability of water, and previous fertility practices on the pasture. A pasture rental rate can be based on [the following]:
– current market rates – a return on investment in pastureland – forage value – rent per head per month (AUM) – carrying capacity – rent per pound of gain”
“right” amount to charge for pasture rent is highly variable: “Both land owners (lessors) and grazers (lessees or renters) need to determine a fair rental or lease rate. What is a fair amount to charge for rent? The answer is always: “It depends”. The devil is in the details and there can be many details to work out.”
Related to the conversation between pasture landowners and tenants is consideration of fertilization alternatives and guidelines. Parties may wish to review information on pasture improvement alternatives (and costs) at two different ISU publications:
Estimated Costs of Crop Production in Iowa (2022): This publication summarizes crop production costs of multiple rotations. In particular, Annual Production Costs for Established Alfalfa or Alfalfa-Grass Hay are provided on page 10; and Annual Costs per Acre to Maintain Grass Pastures are provided on page 11 of the publication.
Fertilizing Pasture: This publication address grass pasture fertilization rates, timing, and soil quality, including: types of nitrogen; nitrogen rates, response, and profits; and phosphorous and potassium (P-K) rates for legume-grass pastures.
Our colleagues at North Carolina State University Extension (NCSU) have a suggestedform for a pasture lease agreement. As with all such templates, this is only a suggested form that the parties can use to start conversation and make decisions about responsibilities. This NCSU lease agreement indicates some of the details to be worked out between a landowner and a livestock producer – such as improvements, seeding, fertilizer, repair of fences or buildings (if any) or water supply improvements. There is not a single “right way” to do things.
The 2022 ISU Cash Rental Rate Survey was recently released (May 2022). Landowners and producers should read the first two pages of the publication describing this opinion survey and definitions of terms used within the report. On the last past of the survey data, readers will find (see bottom of page 12) a summary of typical cash rents from survey respondents on rents for pastures by Crop Reporting District. Remember—these are only the responses of those who completed the survey, and the results can be highly variable and dependent on conditions and the agreement on various items between the landowner and the livestock producer. Note that on page one of the survey, there is a list of variables that may justify a higher or lower than average rent – and one of these is “Other services provided by the tenant.” Again, such services can include stewardship practices (weed control, fertilizer) and repairs (e.g., fencing) – depending on what terms are agreed upon by the parties. It is important for a tenant (livestock producer) to keep track of the costs of services and improvements to the pasture (including labor), and provide that information to the landowner – otherwise, the landowner cannot have a good understanding of these costs.
Overall, communication is key to determining a fair pasture rental rate that works for both the producer and the landowner.
Several states provide farm financial summary data each year. The information available varies by state and the following is an updated summary of what states include farm family living expense data. The original source of this information can be found in the February 2017 Ag Decision Maker newsletter article, Why have farm family living expenses been identified as a problem?.
Iowa Farm Business Association (IFBA)
Iowa State University Extension and Outreach reports summarized Iowa Farm Business Association data in AgDM File C1-10, Farm Costs and Returns. However, family living expenses are no longer broken into a unique category in revisions dated after 2009.
Illinois Farm Business Farm Management Association (Illinois FBFM)
The Illinois FBFM uses the Owner Withdrawal approach. FarmDocDaily’s When Creating 2021Budgets, Keep In Mind Family Living Costs include a summary separating family living expendables, capital purchases for family living, and income and social security tax payments. The 2019 averages were $78,894 for noncapital, $5,446 for capital items “such as the personal share of the family automobile, furniture, and household equipment,” and $24,525 for income and social security taxes. The 2017 averages were $79,798 for noncapital, $5,744 for capital items “such as the personal share of the family automobile, furniture, and household equipment,” and $28,435 for income and social security taxes. The totals are useful, but the single category of noncapital does not provide much detail on categories of spending.
Farm and Family Living Income andExpenditures reports high and low third costs of living for a family of three to five in 2019 on the final page. Expendables is expanded to four categories. The categories are Contributions, Medical, Insurance (life and disability), and Expendables. Summing the noncapital and capital living expenses, the low third had a total cost of living of $57,337 and the high third was more than twice as much at $143,785 before income and social security taxes.
In this report, three categories are added. The same categories are used in the full report. Twenty-three percent of the 5,500 Illinois FBFM members provide the information necessary to report Owner Withdrawals with the additional detail.
Thirty-seven percent, of the 898 KFMA members analyzed, reported family living expenditures in 17 categories. Figure 2 gives the family living expense categories from that report and provides a visual realization of the changes in expenditure for the nine largest categories. A farm family looking at the graph may be able to think about changes in their own expenditures, and areas where costs could be cut. Home repairs, contributions, recreation, and household all increased dramatically beginning in 2006 through 2014, and have declined or remained steady since. Total family living expenses have remained fairly flat since 2015, with an average change of just 0.3% over the past 6 years. Large increases in the category of health insurance have been off-set by declines in categories such as home repairs and recreation (categories also strongly impacted by COVID-19 in 2020).
In An Analysis of Family Living ExpenseCategories, the correlation between net farm income and family living expenses is explored. Greg Ibendahl writes, “Family living is correlated to net farm income (correlation 0.62) but it appears to have a lag as the jump in family living expenses happened after the jump in net farm income. In publication GI-2016.7, we hypothesized family living was based on a four- year average of net farm income. Also, while net farm income in 2015 declined to near zero, family living is only starting to show a decline. Although total family living expenses declined slightly… some expense categories showed steeper declines…home repairs, contributions, medical, gifts and auto all showed declines in 2015.” This hypothesis is supported by the flat total family living expenses from 2015 to 2020 while net income rose substantially (26% average increase each year).
Southwest Minnesota Farm Business Association, Missouri Farm Business Management Association, and Nebraska Farm Business Incorporated
The Minnesota, Missouri, and Nebraska associations use the same family living expense categories. Page 22 of the Southwestern Minnesota Farm Business Management Association Annual Report and page 15 of the Missouri Farm Business Management Analysis Record Summary show the allocation of Owner Withdrawals. Nine percent of the 109 Missouri FBMA members reported family living expenditures in detail and 32% of the 108 Southwest Minnesota FBMA members reported family living expenditures in detail.
The 28 categories used by the Minnesota, Missouri, and Nebraska associations may be a sweet spot between the 17 categories used by the Kansas Farm Management Association, and the 103 categories used by the Bureau of Labor Statistics (Table 1). If the Kansas Farm Management Association categories are used, be sure to add personal taxes, purchases of personal assets, and other non-business expenditures to get to the total Owner Withdrawals.