Is Margin Protection Right For You?

Is Margin Protection Right For You?

Written by: Amanda Pilgrim Senior Insurance Specialist

Even though Margin Protection has been around for a few years, you may not have heard much about it before the Fall of 2021. At that time, it started to look more appealing based on where prices were at that time, along with input costs, which caused Margin Protection to gain traction along with the Supplemental Coverage Option (SCO) and the Enhanced Coverage Option (ECO). We are going to explore what Margin Protection is, how it works, provide an example of it, and take a look at the history of prices for it.

What is Margin Protection?

Margin Protection is available in select counties for corn, soybeans, and wheat. Margin Protection allows you to consider certain variable costs of production in formulating the insurance guarantee. It is an area-based option that uses county-level estimates of average revenue and input costs to establish the amount of coverage and indemnity. Ultimately, it diversifies your risk management strategy with different variables than your multiperil crop insurance (MPCI) policy by insuring some risks associated with yield, crop price fluctuation, and increases in the prices of production inputs.

How does Margin Protection Work?

Margin Protection can be purchased by itself or with a Yield/Revenue Protection policy as long as it is written with the same approved insurance provider. Margin Protection uses a different price period than the standard MPCI policy. For a 2023 Margin Protection policy on corn, soybeans, and wheat, the Projected Price and Cost Discovery Period is August 15, 2022 to September 14, 2022.

Margin Protection includes a harvest Price Option, which is the same harvest price as a Revenue Protection policy (announced in the Fall of 2023). It also uses the same Risk Management Agency

(RMA) Expected and Harvest Yields as SCO/ECO and area revenue protection.

Prior to the sales closing deadline of September 30, RMA will release the following information for each county:

• Expected county yield

• Projected price

• Expected cost

• Expected margin is calculated

After Harvest, RMA releases the following for each county:

• Final county yield

• Harvest price

• Harvest cost

• Harvest margin is calculated

When signing up for Margin Protection you will pick coverage levels that will range from 70% to 95% as well as a protection factor that will range from .8 to 1.2. Liability is based on an expected margin for the crop. There are then two types of inputs that are considered when determining the margin: Those subject to price change and those that are not.

An indemnity will be triggered if the harvest margin is less than the expected margin. If there is a loss paid under the Revenue Protection policy, the indemnity amount from that policy will be subtracted from any loss under the Margin Protection policy. Indemnities are paid out when final county yields are available (spring of following year).

Margin Protection Corn Example with MP-Harvest Price Option (HPO)

Calculating an MP trigger at 95% coverage, 1.1 protection factor, and a small commodity price increase.

*Costs that are taken into account for Expected Costs include urea, diammonium phosphate, monoammonium phosphate, potash, diesel, and interest rate. To calculate the Expected Cost, you multiply the quantity of each allowed input by the input’s projected price.

Margin Protection Reminders

• It is area-based and therefore, it may not reflect what happens on your individual farm. You may have a decrease in your margin depending on the county you are in, or you may not receive an indemnity.

• You can have a Margin Protection policy and still buy an underlying Revenue Protection or Yield Protection policy in the spring.

• The expected revenue used in setting the trigger margins will reset if the Harvest Price is higher than the Projected Price.

• You cannot have both SCO or Whole Farm Revenue Protection and Margin Protection, but you can have ECO with Margin Protection.

• Farmers and ranchers who purchase a Yield Protection or Revenue Protection policy get a premium credit on the Margin Protection premium.

• If triggered, you will receive both a Margin Protection and Revenue Protection indemnity in two separate payments to help with cash flow, but your total indemnity will be the greater of your Margin Protection indemnity or Revenue Protection indemnity.

• The deadline to purchase Margin Protection for the 2023 crop year is September 30, 2022.

If you are wondering if Margin Protection is available in your county, you can find the county lists by crop at marginprotection.com. Hopefully, after having read this article, you will now be able to use this information to help determine if Margin Protection is the right fit for you. If you have any questions on Margin Protection or would like to walk through more examples by using AgCountry’s Margin Protection Indemnity Calculator, please feel free to reach out to your closest AgCountry crop insurance specialist.