Margin Protection Crop Insurance FAQ

Steven Johnson

Contributed by Steve Johnson, Retired Extension Farm Management Field Specialist, sdjohns@iastate.edu

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:

CornDiesel fuel, interest, diammonium phosphate, urea, potash
SoybeansDiesel fuel, interest, diammonium phosphate, potash

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:

CornPre-harvest machinery, seed, lime, herbicide, and insecticide costs;
SoybeansPre-harvest machinery, seed, lime, and herbicide costs.

Additional Resources:

An MP Premium Calculator can be found at: www.marginprotection.com

A USDA Risk Management Agency (RMA) fact sheet on Margin Protection can be found at: https://www.rma.usda.gov/en/Fact-Sheets/National-Fact-Sheets/Margin-Protection-for-Federal-Crop-Insurance

Client Corner: Where can I find average prices for corn and soybeans?

Contributed by Ann Johanns, aholste@iastate.edu, extension program specialist

Where would I find average (monthly or yearly) prices for corn and soybean for my county? I have seen state data, but wondered if county data is available.

A publication available on Ag Decision Maker lists monthly corn and soybean prices for the state of Iowa. The monthly averages are as reported by the USDA National Ag Statistics Service Iowa Field Office. Marketing year and calendar year averages are also provided, .

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.

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Pasture Rental Concerns?

Melissa O'Rourke

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, morourke@iastate.edu

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”

Colleagues at the Iowa Beef Center post a good discussion of Pasture Rental and Lease Agreements from the Midwest Perennial Forage & Grazing Working Group. Commentary in this discussion explains that the

“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 suggested form 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.

These materials are intended to assist landowners and tenants to understand methods and determine a fair rental rate. After reviewing these resources, contact a member of the ISU Extension and Outreach Farm Management Team with questions.

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Farm Business Association data on farm family living expenses

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 2021 Budgets, 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 and Expenditures 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.

Kansas Farm Management Association (KFMA)

The KFMA provides An Analysis of Family Living Expense Categories.

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 Expense Categories, 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.

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Crop insurance coverage-frequently asked questions

Map showing ISU Extension Farm Management Specialists
Iowa State University Extension and Outreach Farm Management Specialists

Iowa State University Extension and Outreach Farm Management Specialists, https://www.extension.iastate.edu/ag/farm-management, provide expertise regarding crop insurance and adverse events. Losses due to adverse weather conditions such as hail, frost, freeze, wind, drought, and excess moisture are insurable losses under multiple peril crop insurance. In 2021, the impact of drought conditions has continued for much of Iowa. Losses due to drought are an insurable loss under multiple peril crop insurance.
Another dynamic added to the mix is yield loss due to chemical drift, which is not a covered loss under multiple peril crop insurance.

Question: How many of Iowa’s corn and soybean acres are covered by crop insurance?

Iowa farmers planted 23 million acres of corn and soybeans in 2021. Approximately 90% of those acres have been insured using Revenue Protection (RP) multiple peril crop insurance. These insurance policies can guarantee various levels of a percentage of the farm’s average yield times the higher of the projected price (average futures price in the month of February) or the harvest price (average futures price during the month of October), using the November 2021 futures contract for soybeans and the December 2021 futures contract for corn. Most farm operators carry a guarantee of their APH from 65% to 85% level of coverage. The projected prices (futures average prices in February 2021) were $4.58/bu for corn and $11.87/bu for soybeans, respectively.

Drought damaged corn; photo courtesy of Meaghan Anderson, Extension Field Agronomist
Drought Damaged Corn; Photo courtesy of Meaghan Anderson, Extension Field Agronomist

Question: What should an insured farmer do once a crop loss is recognized?

  1. Notify the insurance agent within 72 hours of the discovery of damage, but not later than 15 days after the end of the insurance period. A notice of loss can be made by phone, in writing or in person. Although drought loss is not immediate, farmers should contact their agent as soon as they feel a loss is present.
  2. Continue to care for the crop using good farming practices and protect it from further damage, if possible.
  3. Get permission from the insurance company, also referred to as your Approved Insurance Provider (AIP), before destroying or putting any crop to an alternative use.

Question: Who will appraise the crops and assess the loss?

The crop insurance company will assign a crop insurance adjuster to appraise the crop and assess the loss. The insured farmer must maintain the crop until the appraisal is complete. If the company cannot make an accurate appraisal, or the farmer disagrees with the appraisal, the company can have the farmer leave representative sample areas.
These representative sample areas of the crop are to be maintained – including normal spraying if economically justified – until the company conducts a final inspection. Failure to maintain the representative sample areas could result in a determination that the cause of loss is not covered. Therefore, no claims payment to the producer.
Once appraised the crop can be released by the company to be:

  1. Destroyed – through tillage, shredding, or chemical means; or
  2. Used as silage or feed.

Question: Once released, may I harvest my corn as silage for feed?

Check with your crop insurance company. In a county where corn can be insured as grain only, the corn will be released, or harvested as silage or sold as feed. Any grain will be counted as production for your claim. In a county where corn can be insured as silage, the harvested silage will be counted as production.

Question: What is the difference among insurance units?

Many farmers have chosen to insure their crops using enterprise units in order to pay less expensive insurance premiums. Under enterprise units, losses are calculated by crop by county. Therefore all the corn planted by a farmer in a given county would be added together to determine a loss. If a farmer has chosen optional units, then losses are calculated by crop by field unit. Premiums are typically higher if choosing optional units but a good yield on one field does not cancel out the loss on another field.

Question: When will farmers be receiving indemnity payments for their crop insurance losses?

Adjusters will be busy with the increase in losses in areas that have been impacted. As soon as you are finished harvesting notify your insurance agent and an adjuster will be assigned to you. Insurance companies cannot defer payments to the next tax year, but claims adjusted late in the year may not be paid out until the following year.

Question: What is the maximum price that the harvest time indemnity price (average October futures price) can reach?

The maximum harvest indemnity price values for 2021 are twice of the projected price; or $9.16/bushel for corn and $23.74/bushel for soybeans, respectively.

Question: Can indemnity payments be deferred for income tax purposes until 2022?

A taxpayer using the cash method of accounting claims the income in the year they receive the payment. The insurance company will send the insured a 1099 form showing the amount and tax year to report the income.
A farmer, if they are using the cash method of accounting for reporting taxes, can elect to defer crop insurance payments if the loss is due to yield loss and they normally sell more than 50% of their crop the year following harvest. They cannot defer any loss that is due to price loss. Farmers that are using the accrual method of accounting for reporting taxes cannot defer crop insurance payments.

Question: Will I be asked to provide proof of my bushels this year for crop insurance verification?

All multiple peril crop insurance users are subject to production verification on a random basis. If a claim that exceeds $200,000 is filed for an individual crop and policy, verification of production is automatically required by regulation. This also requires a 3-year audit.

Additional Resources

Ag Decision Maker Crop Insurance Files, https://www.extension.iastate.edu/agdm/cdcostsreturns.html#insurance
Managed Haying or Grazing of CRP Acres, https://www.extension.iastate.edu/agdm/livestock/html/b1-60.html
Ag Decision Maker Crop, Livestock, and Weather Outlook resources, https://www.extension.iastate.edu/agdm/outlook.html
ISU Extension and Outreach Drought Resources, https://www.extension.iastate.edu/disasterrecovery/drought
Special Rule for Taxing Crop Insurance and Disaster Payments, https://www.calt.iastate.edu/blogpost/special-rule-taxing-crop-insurance-and-disaster-payments
RMA Crop Insurance and Drought-Damaged Crops, https://www.rma.usda.gov/en/News-Room/Frequently-Asked-Questions/Crop-Insurance-and-Drought-Damaged-Crops
RMA Extends Deadlines, Waives Interest Deferral for Emergency Drought Relief, https://www.rma.usda.gov/News-Room/Press/Press-Releases/2021-News/RMA-Extends-Deadlines-Waives-Interest-Deferral-for-Emergency-Drought-Relief
RMA Authorizes Emergency Procedures to Help Drought-Impacted Producers, https://www.rma.usda.gov/News-Room/Press/Press-Releases/2021-News/RMA-Authorizes-Emergency-Procedures-to-Help-Drought-Impacted-Producers

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