Margin Protection

Margin Protection (MP) provides coverage against an unexpected decrease in operating margin (revenue less input costs). Margin Protection is area-based, using county-level estimates of average revenue and input costs to establish the amount of coverage and indemnity payments. Since Margin Protection is area-based (average for a county), it may not reflect individual experience. A payment may be made when the harvest margin for the county is lower than the trigger margin due to a decrease in revenue and/or an increase in input costs. Margin Protection will cover a portion of that shortfall.

Other Insurance

Margin Protection can be purchased by itself or in conjunction with a Yield Protection (YP) or a Revenue Protection (RP) policy. Growers who purchase a YP or RP policy get a premium credit on the Margin Protection premium and receive the greater of the Margin Protection or RP indemnity in the fall. MPCI base YP or RP policy MUST be with the SAME Approved Insurance Provider. The credit is the actuarially determined value of the expected overlapping indemnities between Margin Protection and RP at the time of RP sales closing.

Coverage Availability

Margin Protection is available in select counties for rice, corn, soybeans and wheat in states listed below.

Rice

Corn and Soybeans

Wheat

Arkansas
California
Louisiana
Mississippi
Missouri
Texas

Illinois
Indiana
Iowa
Kansas
Michigan
Minnesota
Missouri
Nebraska
North Dakota
Ohio
South Dakota
Wisconsin

Minnesota
Montana
North Dakota
South Dakota


Margin Protection Basics

Margin Protection provides coverage that is based on an expected margin for each applicable crop, type and practice.

Expected Margin = Expected Revenue ˗ Expected Costs, where:

  • Expected revenue (per acre) is the expected county yield multiplied by a projected commodity price; and
  • Expected cost (per acre) is the dollar amount determined by multiplying the quantity of each allowed input by the input’s projected price.

Trigger Margin = Expected Margin ˗ Deductible
The deductible is 1.00 minus the coverage level multiplied by the expected revenue.

Margin Protection offers coverage levels from 70% to 95% and protection factors from 0.80 to 1.20.

Margin Protection can be purchased with the Harvest Price Option (MP-HPO). Under MP-HPO, if the harvest price exceeds the projected price, the expected revenue used in setting trigger margins is reset based on the harvest price.

Margin Protection Concepts

Prior to the SCD, RMA releases in the actuarial documents for each county:

  • Expected County Yield (ECY)
  • Projected Price
  • Expected Cost
  • Expected Margin is calculated

After Harvest, RMA releases in the actuarial documents for each county:

  • Final County Yield (FY)
  • Harvest Price
  • Harvest Cost
  • Harvest Margin is calculated

Expected Costs

When determining the margin, two types of inputs are considered:

  1. Those not subject to price change (i.e. fixed from planting to harvest); and
  2. Inputs subject to price changes.

Inputs not subject to price change are not specifically identified, but include: seed, machinery, operating costs (other than fuel) and similar expenses.

Inputs subject to price change are identified in the Margin Protection provisions and include the following:

Crop

Allowed Inputs Subject to Price Change

Corn

Diesel, Urea, Diammonium Phosphate price (DAP), Potash, Interest

Soybeans

Diesel, DAP, Potash, Interest

Rice

Diesel, Urea, DAP, Potash, Interest

Wheat

Diesel, Urea, Monoammonium Phosphate (MAP), Potash, Interest



Margin Protection simple example

Calculating an MP Trigger at 95% coverage level

Expected Margin
(Expected Yield x Projected Price) ˗ Expected Cost
(180 bu./acre x $4.00) - $313.60/acre = $406.40/acre

Margin Deductible
Expected Revenue x (1 ˗ Coverage Level)
(180 bu./acre x $4.00) x (1 - 95%) = $36/acre

Trigger Margin
Expected Margin ˗ Margin Deductible
$406.40/acre - $36/acre = $370.40/acre

Calculating an MP Indemnity with a 1.20 Protection Factor

Harvest Margin
(Harvest Yield x Harvest Price) ˗ Harvest Cost
(160 bu./acre x $3.80) - $313.60/acre = $294.40/acre

Margin Loss
Trigger Margin ˗ Harvest Margin
$370.40/acre - $294.40/acre = $76/acre

Margin Indemnity
Margin Loss x Protection Factor
$76/acre x 1.20 = $91.20/acre

Margin Protection example with MP-HPO

Calculating an MP Trigger at 95% coverage level and a small Commodity price increase

Expected Margin
(Expected Yield x max{Proj, Harv}) ˗ Expected Cost
(180 bu./acre x max{$4.00, $4.10}) - $313.60/acre = $424.40/acre

Margin Deductible
Expected Revenue x (1 - Coverage Level)
(180 bu./acre x $4.10) x (1 - 95%) = $36.90/acre

Trigger Margin
Expected Margin ˗ Margin Deductible
$424.40/acre - $36.90/acre = $387.50/acre

Calculating an MP Indemnity with a 1.20 Protection Factor

Harvest Margin
(Harvest Yield x Harvest Price) ˗ Harvest Cost
(160 bu./acre x $4.10) ˗ $313.60/acre = $342.40/acre

Margin Loss
Trigger Margin ˗ Harvest Margin
$387.50/acre ˗ $342.40/acre = $45.10/acre

Margin Indemnity
Margin Loss x Protection Factor
$45.10/acre x 1.20 = $54.12/acre

Note: The Margin Harvest Price will not be greater than the Margin Projected Price multiplied by 2.00.

Payments

Any indemnities owed will be paid when final county yields are available, in the spring of the following year.

Training Materials

Resources