Margin Protection: A Risk Management Tool to Consider for 2022

As you start making 2022 crop production plans, couple them with risk management plans. One tool to consider is margin protection for federal crop insurance, says Steve Johnson, retired Iowa State University Extension farm management field specialist.

Margin protection 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 indemnity payments. 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. 

Johnson recently discussed margin protection with AgriTalk’s Chip Flory:

Here are some details of the program:

• The product was released by USDA’s Risk Management Agency five years ago.
• It is for spring crops (corn, soybeans and spring wheat).
• It is available in 22 states.
• It can be purchased by itself, or in conjunction with a Yield Protection or Revenue Protection policy purchased from the same Approved Insurance Provider that issued the Margin Protection policy.
• Any indemnities owed will be paid when final county yields are available, in the spring of the following year.

“This month (mid-August to mid-September) is the price discovery period for not only the projected price for margin protection but also for some of the variable costs,” Johnson says. “It's focusing on the 2022 crops and is looking at what are those futures prices now (mid-August to mid-September), and then it will come back and compare those same costs to next April. So, if you're thinking that costs are going to increase, then margin protection should create some interest.”

You must enroll in the program by Sept. 30.

Johnson says this add-on product is a good fit for farmers whose yields are consistently above county average yields, and you typically buy 80% to 85% revenue protection. 

Margin protection can be bought at high coverage levels. Johnson says if you can afford it, buy at the highest level.

“I think this product is going to work very well when we are at extremely high futures prices for the 2022 crop and then those prices start to decline, especially between now and February when we discover the spring projected price,” he says.

During the next few weeks, Johnson suggests setting an appointment with your crop insurance agent to talk through if margin projection is a good fit for your operation. Currently he thinks it will be a better fit for corn production versus soybeans but suggests looking at both crops with your agent. 

Read More: Margin Protection for Federal Crop Insurance