MPP may be smart to consider, particularly if ARP has traditionally been a good fit for you.
■ You’re spread out within a county
■ You farm the best dirt in the county, consistently beating county averages by 10-30 bushels
■ You’re an irrigated farmer in a primarily dryland county
It’s well-known that input prices can and do vary throughout the growing season. Even if a farm achieves a particular revenue target, the farm may not see profit, because input prices could have risen, erasing margins. A new crop insurance option—the Margin Protection Program (MPP)—insures the farm’s margin rather than overall revenue.
MPP is an area-based protection plan, working similarly to Area Revenue Protection (ARP), or prior to that, Group Risk Income Protection (GRIP). It allows you to lock in a particular margin based on an area-based input price. The farmer can then elect to protect up to 95 percent of that margin.
MPP: The basics
If you have traditionally taken ARP, or GRIP before, it may be wise to consider MPP this year. As mentioned, this new option focuses on protecting your margin—or the difference between your input costs and final revenues—rather than just revenue alone.
Input costs include your fixed costs, such as seed and chemical. You also have variable costs—like diesel fuel, MAP, DAP and nitrogen—among others, that can vary drastically in price.
For example, let’s say a farmer expects to make $800 per acre in revenue based on prior yields and price projections. The farmer ends up with $450 per acre in fixed and variable costs that crop year. MPP can insure the farmer’s $350 per acre of margin, at 95 percent (a deductible of $17.50 per acre).
MPP: More details
Claims under MPP can be triggered in two different ways. In one type of claim scenario, the farm’s top line revenue is declining, while fixed and variable costs remain the same. Or conversely—top line revenue is staying constant, while variable costs have increased.
These scenarios bring to mind several years past: 2015, where some areas had the need to sidedress more, or use additional inputs than expected. MPP could also provide protection in a year like 2009, where costs and revenue were both down, yet input prices moved higher.
Another major difference is MPP’s timing of pricing, which is six months ahead of traditional crop insurance pricing. For 2019, the price will be set between August 15, 2018 and September 14, 2018. A buying decision is due on September 30, 2018.
MPP can also be stacked with a revenue protection (RP) or yield protection (YP) policy. Traditionally, with ARP, it’s typically either a good fit for you or not. If not, the main option is to take RP. But with MPP, you have the option to see what the August-September pricing period offers. Then you have the option to take it—and potentially also RP as well, if an area-based protection plan isn’t quite the best fit for you.
Similar to ARP, MPP does not provide replant or prevented plant payments, so it’s important to take wind or hail insurance along with it.
In previous years, MPP was only available in Iowa for corn and soybeans as a pilot program. For the 2019 crop year, access to MPP is widespread throughout the Corn Belt, for corn, soybeans and wheat.
Determine whether MPP is a good fit for your farm—meet with a Water Street ag risk advisor as soon as possible to learn more. They’ll provide a side-by-side comparison of what it would mean for you to take ARP versus MPP. The MPP deadline for the 2019 crop is September 30, 2018.
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