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:
|Corn||Diesel fuel, interest, diammonium phosphate, urea, potash|
|Soybeans||Diesel 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:
|Corn||Pre-harvest machinery, seed, lime, herbicide, and insecticide costs;|
|Soybeans||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.
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
Ag Decision Maker File A1-53, Margin Protection Crop Insurance