CONSIDER MARGIN PROTECTION FOR THE 2022 CROP, FARM SPECIALIST SAYS
News text
Growers should consider use of Margin Protection crop insurance for managing ’22 crop revenue risks.
Margin Protection (MP) provides coverage against an unexpected decrease in operating margin (revenue less input costs). It is area-based, using county-level estimates of average revenue and input costs to establish the amount of coverage and trigger revenue. An indemnity payment may be made when the harvest margin for the county is lower than the trigger margin due to a decrease in revenue or an increase in input costs.
Here are some details of the program:
- The product was released by USDA’s Risk Management Agency five years ago.
- Available for spring planted commodity crops (corn, soybeans, and spring wheat) in 22 different states.
- It can be purchased by itself, or in conjunction with a Yield Protection (YP) or Revenue Protection (RP) policy but must be purchased from the same Approved Insurance Provider that issued the MP policy.
- Any indemnities owed will be paid when final county yields are available, in the spring of the following year.
- Insureds must purchase MP coverage for the ’22 crop by September 30.
The price discovery period (mid-August to mid-September) is for both the projected price but also but also select variable costs.
MP coverage is focused on the ’22 spring planted crops and looks at what those futures price averages will be over roughly 30 days. Come mid-September, these variable cost averages will be compared to the same costs next April.
So, if you’re thinking that these variable costs are going to increase, then MP should create even more interest.
This add-on product is a good fit for farmers whose farm yields track with the county average yields, and who annually buy 80% to 85% RP coverage.
Margin Protection can be bought at up to the 95% coverage level, so there is only a 5% deductible. Since it’s an area-based plan using county yield averages, producers should focus on the highest levels of coverage to have the most benefit for the policy to trigger an indemnity should a margin shortfall occur. The product is subsidized by the federal government in a range of 44% to 59%, depending on the leverage of coverage elected.
This product will work very well when we are at extremely high futures prices for the ’22 crop and then those futures prices start to decline. This is especially true between now and February 2022 when the discovery for the spring projected price for both RP and YP coverage occurs.
Pay attention to the futures closes for ’22 Dec. corn and ’22 Nov. soybean contracts. Discuss with your crop insurance agent soon the potential benefits of MP coverage and whether it is a good fit for your operation. Don’t forget the September 30 deadline to make your purchase decision.
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Steve Johnson is a retired Iowa State University Extension farm management specialist.
Growers should consider use of Margin Protection crop insurance for managing ’22 crop revenue risks.
Margin Protection (MP) provides coverage against an unexpected decrease in operating margin (revenue less input costs). It is area-based, using county-level estimates of average revenue and input costs to establish the amount of coverage and trigger revenue. An indemnity payment may be made when the harvest margin for the county is lower than the trigger margin due to a decrease in revenue or an increase in input costs.
Here are some details of the program:
- The product was released by USDA’s Risk Management Agency five years ago.
- Available for spring planted commodity crops (corn, soybeans, and spring wheat) in 22 different states.
- It can be purchased by itself, or in conjunction with a Yield Protection (YP) or Revenue Protection (RP) policy but must be purchased from the same Approved Insurance Provider that issued the MP policy.
- Any indemnities owed will be paid when final county yields are available, in the spring of the following year.
- Insureds must purchase MP coverage for the ’22 crop by September 30.
The price discovery period (mid-August to mid-September) is for both the projected price but also but also select variable costs.
MP coverage is focused on the ’22 spring planted crops and looks at what those futures price averages will be over roughly 30 days. Come mid-September, these variable cost averages will be compared to the same costs next April.
So, if you’re thinking that these variable costs are going to increase, then MP should create even more interest.
This add-on product is a good fit for farmers whose farm yields track with the county average yields, and who annually buy 80% to 85% RP coverage.
Margin Protection can be bought at up to the 95% coverage level, so there is only a 5% deductible. Since it’s an area-based plan using county yield averages, producers should focus on the highest levels of coverage to have the most benefit for the policy to trigger an indemnity should a margin shortfall occur. The product is subsidized by the federal government in a range of 44% to 59%, depending on the leverage of coverage elected.
This product will work very well when we are at extremely high futures prices for the ’22 crop and then those futures prices start to decline. This is especially true between now and February 2022 when the discovery for the spring projected price for both RP and YP coverage occurs.
Pay attention to the futures closes for ’22 Dec. corn and ’22 Nov. soybean contracts. Discuss with your crop insurance agent soon the potential benefits of MP coverage and whether it is a good fit for your operation. Don’t forget the September 30 deadline to make your purchase decision.
———–
Steve Johnson is a retired Iowa State University Extension farm management specialist.