Programs Blog News What's New RMA USDA USDA En Español Contact Us Field Offices About RMA

You are: Home / Help / FAQs / Margin Protection
 

Frequently Asked Questions

Margin Protection

May 15, 2017

Sections
General Information Questions
Purchase Decision Questions
Premium and Subsidy Questions
Program Features Questions
Allowable Inputs and Projected and Harvest Price Questions
MP Coverage and Liability Questions
MP Loss and Payment Questions

General Information Questions

Q: What is Margin Protection (MP)?
A: MP is an area-based insurance plan that provides coverage against an unexpected decrease in operating margin (revenue less input costs), caused by reduced county yields, reduced commodity prices, increased price of certain inputs, or any combination of these perils. Because MP is area-based (average for a county), an individual farm may have a decrease in its margin but not receive an indemnity.

Q: Where is MP available?
A: MP is available for corn, rice, soybeans, and wheat in select states and counties, as follows:

  • Rice: Select counties in Arkansas, California, Louisiana, Mississippi, Missouri, and Texas;
  • Corn and soybeans: Select counties in Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin; and
  • Wheat: Select counties in Minnesota, Montana, North Dakota, and South Dakota.

Q: How does MP work?
A: MP provides coverage that is based on an expected margin per acre for each applicable crop, type, and practice.

Expected Margin = Expected Revenue per acre – Expected Costs per acre, where:

  • The expected revenue per acre is the expected county yield multiplied by a projected commodity price; and
  • The expected cost per acre is the dollar amount determined by multiplying the quantity of each allowed input by the input’s projected price.
You may choose MP coverage levels from 70 percent to 95 percent. These are considered relative to the expected revenue in the county. A higher coverage level has a higher premium rate. The Catastrophic Risk Protection (CAT) coverage level is not available with MP.

Q: How and where do I purchase MP insurance?
A: MP is available for purchase from your local crop insurance agent. You can find a crop insurance agent using the Agent Locator tool on the Risk Management Agency (RMA) website at www.rma.usda.gov/tools/agent.html.


Purchase Decision Questions

Q: What are the sales closing dates for MP?
A: The MP sales closing date for corn, soybeans, and spring wheat is September 30 of the year prior to the insured crop year. The MP sales closing date for rice is January 31 in some areas and February 28 in other areas. The MP sales closing date for rice is generally the same as the sales closing date for other rice policies. All sales closing dates are shown on the Actuarial Information Browser on RMA’s website at www.rma.usda.gov.

Q: Can I buy MP with another Federal reinsured crop insurance policy for the same crop?
A: Yes. You can buy MP by itself, with a Yield Protection policy or with a Revenue Protection policy (a base policy). However, if you buy another policy, it must be from the same Approved Insurance Provider that issued the MP policy. There is no restriction with regard to the agent or agency. If you buy a Yield Protection or Revenue Protection policy, you will receive an MP premium credit because indemnity payments from one policy can offset payments from the other so this combination lowers the risk of loss under MP. You may buy any endorsements available for the base policy, except the High-Risk Alternate Coverage Endorsement and the Supplemental Coverage Endorsement.

Q: Can I buy MP and still buy other private crop insurance policies not reinsured by the Federal Crop Insurance Corporation (FCIC)?
A: Yes. MP does not place any restriction from you seeking to purchase any private crop insurance policy that FCIC does not reinsure such as crop-hail, a non-reinsured supplemental policy or similar, in addition to your MP and base policy.

Q: Can I buy a Revenue or Yield Protection policy (Base Policy) at the CAT coverage level if I buy MP?
A: Yes.

Q: Can the coverage levels vary by type and practice?
A: Yes, you may choose any coverage level shown on the actuarial documents for each crop, type and practice.

Q: What is Margin Protection with the Harvest Price Option?
A: The Harvest Price Option allows a grower to choose to include replacement cost coverage to the Margin Protection policy. Similar to many popular revenue-based policies, if the harvest price is greater than the projected price, the expected margin and the trigger margin are recalculated based on the higher harvest price.


Premium and Subsidy Questions and Answers

Q: If I have a base policy and MP, will I owe the full premium for both policies?
A: You will owe premium on both policies. However, if you buy a Yield Protection or Revenue Protection policy, you will receive an MP premium credit because indemnity payments from the base policy can offset payments from the MP policy, reducing the amount of risk covered under the MP policy. This reduces the expected payments from the MP policy and is the basis for the premium credit. The premium credit is determined when all information needed to establish liability under the base policy is known. A premium credit estimator tool is available through the Margin Protection Price Discovery link (scroll down to MP Price Discovery) on the RMA website.

Q: Do I have to pay a separate administrative fee for MP and for the base policy?
A: Yes. An administrative fee applies to MP.

Q: What are the premium subsidies for MP?
A: MP offers the same premium subsidies as other existing area-based plans, which vary by coverage level, as follows:

  • For 70 percent coverage, The subsidy factor is 0.59;
  • For 75 percent and 80 percent coverage, the subsidy factor is 0.55;
  • For 85 percent coverage, the subsidy factor is 0.49; and
  • For 90 and 95 percent coverage, the subsidy factor is 0.44.

Q: As a beginning farmer or rancher, am I eligible for an additional subsidy under MP?
A: Yes. The subsidy for qualifying beginning farmers or ranchers provides an additional 10 percent of premium subsidy and applies to all additional coverage level policies, including MP. For more information on the beginning farmer and rancher program, go to the Risk Management Agency website.

Q: Does the penalty for breaking native sod apply to an MP policy?
A: Yes, the subsidy decrease for those planting crops on native sod applies to MP. For more information on native sod guidelines go to the Risk Management Agency website.


Program Features Questions

Q: If I buy an MP policy will I have to provide a production report?
A: Yes. The MP policy’s basic provisions require a production report. If you have a Yield Protection or Revenue Protection policy also, the production report you submit for the base policy is used for MP, so you do not have to submit two reports. If you do not have a base policy, an annual production report must be submitted to the company for each insured crop by the production reporting date specified in the actuarial documents. The production report for standalone policies contains yield information for the current year, including acreage and production.

The production reporting date for MP alone for corn, soybeans and wheat is after the fall sales closing date for the next crop year. For example, if you purchase a 2017 standalone MP corn policy, you must provide a production report including the 2017 acres and production by February 15, 2018. If you fail to do so and have a 2018 policy (with a September 30, 2017 sales closing date) the company would retroactively adjust the MP coverage down to the lowest available coverage level for the 2018 crop year.

Q: Does MP provide coverage for acres prevented from being planted?
A: No. MP does not provide prevented planting coverage. However, you may buy a Yield Protection or Revenue Protection plan, which provides prevented planted coverage.

Q: Does MP provide coverage for replanting?
A: No. MP does not provide coverage for replanting. However, you may buy a Yield Protection or Revenue Protection plan, which provides replanting coverage.

Q: Are written agreements allowed for MP?
A: No. Written agreements are not allowed under MP.

Q: Can I have a written agreement for high-risk rate reduction on the base policy and still purchase MP?
A: MP does not allow written agreements. However, the underlying base policy may have a written agreement as long as it does not impact the MP coverage. In this case, you would have a written agreement for high risk land on your base MPCI policy and you would be eligible for MP. The high-risk rate written agreement does not impact the MP policy.


Allowable Inputs and Projected and Harvest Price Questions

What are the inputs used to determine MP coverage and losses? How are they determined?
A: Two types of production inputs are specified, those subject to price changes and those that are fixed.

Inputs subject to price changes are, for example, diesel fuel, interest, and certain fertilizers for which projected and harvest prices can be obtained from private, third-party markets. Price changes for these inputs help determine whether an indemnity is paid. Inputs subject to price change by crop are:

  • Corn
  • Diesel, interest, diammonium phosphate, urea, potash;
  • Soybeans
  • Diesel, interest, diammonium phosphate, potash;
  • Rice
  • Diesel, interest, urea, diammonium phosphate, potash; and
  • Wheat
  • Diesel, interest, urea, monoammonium 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. Fixed-price inputs by crop are:

  • Corn
  • Pre-harvest machinery, seed, lime, herbicide, and insecticide costs;
  • Soybeans
  • Pre-harvest machinery, seed, lime, and herbicide costs;
  • Rice
  • Maintenance, chemicals, and application; and
  • Wheat
  • Seed, maintenance, chemicals, and lubrication.

    Q: How are MP Projected and Harvest Prices determined?
    A: The MP projected and harvest prices are determined by futures contracts or swaps market prices from commodity exchange markets. The specific contract, market, and time period used in a given crop and county are listed in the Margin Price Provisions. For more information on the Margin Price Provisions go to the Risk Management Agency website.


    MP Coverage and Liability Questions

    Q: What is the basis for coverage under MP? Could you give an example of how a producer’s MP coverage is determined?
    A: The basis of coverage under MP is the trigger margin, which is the expected margin less the deductible implied by the expected revenue and the coverage level. The expected margin (per acre) is the result of subtracting the expected cost (per acre) from the expected revenue (per acre). (Expected Margin = Expected Revenue – Expected Costs).

    The expected margin is determined on an area basis (generally county), and not an individual producer level. Therefore, all acres in a county have the same expected margin for a given type and practice (i.e., same expected county yield).

    Example of how MP coverage is determined.

    Allowed Inputs
    Diesel Fuel 7.5 gallon per acre
    Nitrogen 150 pounds per acre
    Other inputs $300 per acre

    First, let’s determine the expected revenue. Assume the MP projected price for corn is $4.00 per bushel and the MP harvest price is $4.25 per bushel. The area corn yield is 150 bushels per acre.

    The expected revenue per acre = 150 bushels x $4.00 = $600.00 per acre

    Second, let’s calculate the expected costs. Projected input prices are $3.50 per gallon for diesel fuel and $1.00 per pound for nitrogen. The estimated input requirements are 7.5 gallons of diesel and 150 pounds of nitrogen.

    The expected costs per acre are:

    Diesel 7.5 gallon x $3.50 = $26.25
    Nitrogen 150 pounds x $1.00 = $150.00
    Other inputs $300.00
    Expected costs $476.25 per acre

    The expected margin per acre = $600.00 expected revenue - $476.25 expected costs = $123.75 per acre

    The trigger margin is determined by subtracting the deductible from the expected margin. The deductible is the product of the coverage level and the expected revenue. Assuming a 90-percent MP coverage level, Expected Margin – (Expected Revenue x (1.00 - Coverage Level) = Trigger Margin.
    $123.75 - (600 x (1.00 - 0.90) = $63.75 per acre

    Q: What happens if the trigger margin is zero or negative?
    A: The policy functions in the same manner, whether the margin is positive or negative. In very low price environments, it is possible that prior to planting the expected revenue per acre can be less than expected costs. Based on the design of the MP product, coverage is extended based on the potential change in margin relative to expectations. Even if expected margins are negative, commodity prices could fall further still, yields could come in below expectations, and input prices could increase. MP is designed to protect farmers from these events even in years when expected outcomes are already negative.

    Q: How is the liability calculated and how is it used in MP?
    A: The liability establishes an upper limit on the MP indemnity payments. Growers may elect productivity factors to adjust liability based on their own individual risk management needs.

    Example:

    Assume a 500 acre unit with a county expected yield of 150 bushels per acre, a productivity factor of 1.10 at a 100-percent share. The liability is:

    150 Bushel County Expected Yield
    x 4.00 Margin projected price
    x 0.90 Coverage level
    x $1.10 Productivity Factor
    $594.00 Insurance amount per acre

    $594.00 Insurance amount per acre
    x 500 Acres
    x 1.00 Share
    $297,000 Liability


    MP Loss and Payment Questions

    Q: What effect does a loss under the base policy have on MP?
    A: Generally, any indemnity payments made for the base policy will occur first, with the MP indemnity payments occurring later (the following spring) after final area yields become available. The indemnity from the base policy, and any endorsement, is subtracted from the MP indemnity. If the MP indemnity is larger than the base policy indemnity, the amount of the MP indemnity paid will be the difference between the MP indemnity and the base policy indemnity, but not to exceed the total liability under MP. If the MP indemnity is smaller than the indemnity for the base policy, then no additional indemnity will be paid for the MP policy. Payments received for replanting or prevented planting from an underlying policy will not be considered.

    Q: Could you give an example of how to calculate a loss under MP?
    A: Assume the following outcomes occur for the crop year continuing on with Example 1 above:

    Acres planted = 500
    Final county yield = 140 bushels
    Margin harvest price = $4.00 per bushel
    Diesel fuel price = $4.00 per gallon
    Nitrogen price = $1.25 per pound
    Other inputs = $300.00
    Base policy = $3,000
    indemnity

    The harvest revenue is 140 bushels (final county yield) x $4.00 per bushel = $560 per acre. The harvest cost is:

    7.5 gallons x $4.00 = $30.00 (This input is subject to price change)
    150 pounds x $1.25 = $187.50 (This input is subject to price change)
    Other inputs = $300.00 (This input is not subject to price change)
    Harvest costs = $517.50 total harvest cost (total allowed inputs both subject and not subject
         to price change)

    The harvest margin is: $560.00 - $517.50 = $42.50 per acre

    The indemnity is calculated as (see MP Provisions):

    $63.75 Trigger margin from example 1 above
    $42.50 Harvest margin
    x 500 Insured acres
    x 1.000 Share
    $10,625 MP indemnity (assume no base policy)
    $3,000 Assume base policy indemnity
    $7,625 MP Indemnity after base policy indemnity applied

    The liability for MP coverage is $594.00 x 500 acres = $297,000. The indemnity calculated with or without a base policy is less than this amount; so the amount calculated is payable. If the calculated indemnity amounts were greater than $297,000, the indemnity would be limited to $297,000.

    Q: When are losses paid?
    A: MP losses are paid when final area yields are available, in the spring of the following year.

    For wheat, the final county revenues and final county yields are determined generally around April 1 following the crop year. If an indemnity is due, the Approved Insurance Provider issues any payment around May 1 of the following the crop year.

    For corn, rice and soybeans, the final county revenues and final county yields are determined before April 16 following the crop year. If an indemnity is due, the Approved Insurance Provider issues any payment before May 16 following the crop year.

    Q: What happens if a margin projected price cannot be calculated according to the Margin Price Provisions?
    A: If the margin projected price cannot be calculated by the procedures outlined in the Margin Price Provisions, the margin projected price will be determined by RMA and released by the date specified in the applicable projected price definition in the Margin Price Provisions. The margin harvest price is set equal to the margin projected price RMA establishes. The expected revenue is then calculated by multiplying the expected county yield (by crop, unit, type, and practice) by RMA’s determined projected price. The harvest revenue would be calculated by multiplying the final county yield (by crop, unit, type, and practice) by the same RMA determined price.



    Contact Information

    For more information, contact RMA Public Affairs.