Understanding Margin Protection

Wheat harvest
14 Sep 2022

Margin Protection (MP) is a multi-peril crop insurance policy that protects against decreases in operating margin, whether due to drops in yield, price, or an increase in costs. This is an area plan, so keep in mind that payments on this plan are not directly tied to what is happening on your own farm.

Margin Protection is typically purchased along with an underlying Revenue Protection or Yield Protection product. When MPCI and MP are purchased together, there will be a credit applied, since indemnity payments from your MPCI policy can offset payments from MP. Margin Protection is a subsidized insurance option; factors vary from 44% at the 95% level to 59% at the 70% level.

An MP policy is available on wheat, corn, and soybeans throughout areas of Minnesota, North Dakota, and Wisconsin. Please note it is not available everywhere. Please contact your local AgCountry insurance specialist to verify what options are available to you. 

Coverage levels are available from 70% to 95% in 5% intervals, and a protection factor of 80-120% is also available. Examples below will be using current corn numbers for Grand Forks County in North Dakota.

Expected Margin = Expected Revenue – Expected Costs

To determine the expected margin, the Risk Management Agency (RMA) puts out an expected yield for each county, commodity prices calculated based on the futures market from August 15 to September 14, and some input costs calculated during the same time frame. Inputs are split into two categories - fixed costs, such as seed, machinery, etc that do not change throughout the year, and those subject to change such as interest, fuel, fertilizer, etc.

Expected Revenue (145.1 bu x $6.02) – Expected Costs (Fixed $206.90 + Variable $196.66) = Expected Margin ($469.94)

Harvest Margin = Harvest Revenue – Harvest Costs

Harvest revenue is determined when RMA released the crop insurance records in June of the year following production, and the harvest price is the same as other MPCI policies. Harvest costs are calculated during the month of April for inputs that are subject to price changes.

Harvest Revenue (145.1 bu x $4.50) – Harvest Costs (Fixed $206.90 + Variable $220.54) = Harvest Margin ($225.51)

Trigger Margin = Expected Margin – (Expected Revenue x (1 – Coverage Level))
$469.94 – ($873.50 x (1-.95)) = $426.26

Indemnities will be paid out when the harvest margin is determined to be less than the trigger margin.
$426.26 – 225.51 = $200.75

For this example, there was a slight increase in the variable input costs, a drop on the corn price of $1.52, and the final county harvest yield was identical to the expected county yield.  

Margin Protection Timeline
August 15 – September 14, 2022 - Projected Commodity Price and Projected Input Costs are set

September 30, 2022 - Sales Closing Date

Spring 2023 - Premium Credits are calculated after MPCI prices/premiums are set

April 2023 - Set Harvest Prices for inputs – Urea, DAP, MAP, Potash, and Diesel

September 30, 2023 - Premium Due Date

October 2023 – Harvest Commodity Prices and Harvest Interest Rate are set

Spring/Summer 2024 – Final 2023 County Yields are published

Spring/Summer 2024 – Losses are calculated and paid

If you have any interest in Margin Protection, please feel free to contact the AgCountry office nearest you.

 
Jeremy Johnson
Written By: Jeremy Johnson
Senior Insurance Specialist - Grand Forks