Farm Credit Administration 1 7/19/2017

 Economics Report 

Farm Credit Administration 

Office of Regulatory Policy 

Agricultural and Economic Policy Team

July 19, 2017

Margin Protection: Insurance for 

Managing Crop Margin Risk

Summary

Margin Protection is a federal crop 

insurance policy that recently became 

widely available for corn, soybeans, 

spring wheat, and rice. It allows 

producers to lock in a margin based 

on current expectations of commodity and input prices. It is designed to 

protect against declining margins, 

even in years when expected 

outcomes are already negative.

Farmers can purchase a margin 

policy this September to insure the

2018 operating margin based on the 

difference in expected county crop 

revenue and input costs, including 

diesel fuel, fertilizer, and interest 

expense. After harvest, an indemnity 

is paid if the actual margin is below 

the trigger, which depends on the 

selected coverage level. To address 

farm yield risk, farmers can also 

purchase a traditional yield or 

revenue policy next spring. The 

policy premiums and indemnities of 

the two policies are coordinated. 

Farmers pay about half of the margin 

protection policy premium; the 

federal government pays the rest. 

For the 2016 crop, farmers paid on 

average about $5 per acre for spring 

wheat and $13 for corn.

Although margin protection policies 

have been available in pilot areas for 

two crop seasons, they have been 

lightly used, as is common for new 

crop insurance products. But farmers 

and lenders may find this policy to be 

a useful tool for managing crop 

margin risk. The last day to purchase 

a 2018 policy for corn, soybeans, and 

spring wheat is Sept. 30, 2017.

Author 

Dennis A. Shields, Senior Economist, 

703-883-4056

For many years, federal crop insurance products have compensated insured 

producers following shortfalls in crop yields or revenue. Now, as authorized 

under the 2014 Farm Bill, a margin policy is available to protect against an 

unexpected loss in the crop operating margin (that is, county revenue 

minus costs) over a growing season for corn, soybeans, spring wheat, and 

rice. 

The insurance does not line up exactly with farm-level margin risk because 

the guarantee is based on expected county (not individual farm) yields, 

regional costs, and national prices. To address their own farm yield risk, 

producers may also purchase a traditional yield or revenue policy. 

As insurance agents and others become more familiar with the margin 

policy product, farmers and lenders might want to investigate how this

product fits with other tools to manage farm risk. The policy premiums are 

subsidized at a rate of 44 percent to 59 percent, depending on the selected 

coverage level. The 2018 margin polices must be purchased by Sept. 30, 

2017 (the rice deadline is Jan. 31 in some areas and Feb. 28 in others).

Margin policies were first offered on a pilot basis for 2016 crops. Since 

then, availability has been expanded to most major producing areas for 

corn, soybeans, spring wheat, and rice. 

Availability by county of 2018 margin protection insurance

Source: Margin Protection Plan, Corn, Rice, Soybeans, and Wheat 2018, USDA Risk Management 

Agency.
 

Farm Credit Administration 2 7/19/2017

Margin guarantee includes expected cost of key inputs

The insurance guarantee is calculated as the expected margin prior to planting, with the expected margin 

equal to the expected revenue minus expected costs of key inputs. Expected revenue per acre is calculated by 

multiplying expected county yield by projected commodity price. Expected cost per acre is calculated by 

multiplying the quantity of every input by its projected price and then by adding the results of this calculation 

for all inputs.

The input costs are one of two types: 

Inputs with prices subject to change before harvest (e.g., diesel, urea [nitrogen], phosphate, potash, and 

interest expense) 

Inputs with prices that are not subject to change before harvest (e.g., seed, machinery, and operating 

costs other than fuel) 

Data used for estimating input prices are from a variety of sources, including futures markets (e.g., Chicago 

Mercantile Exchange 30-Day Federal Funds futures and fertilizer swaps; New York Mercantile Exchange diesel 

futures), cash markets (for potash), and land-grant universities (for other costs). For all but rice, which varies 

by state, the discovery period for setting the guarantee (for commodity and input prices) is Aug. 15 to Sept. 

14 in the year prior to harvest. Input amounts per acre are published in actuarial documents for each county. 

The trigger margin is equal to the expected margin minus the deductible, where the deductible is 100 percent

minus the coverage level (selected by the producer) multiplied by the expected revenue. Coverage levels are 

70 percent to 95 percent (higher coverage has a higher premium). As with the Revenue Protection policy, if a 

producer selects the harvest price option, the guarantee is reset at a higher level when the harvest price is 

above the projected price. 

A margin indemnity is paid if the actual harvest margin is less than the trigger margin. Indemnities are paid 

when data on final county yields become available, which is generally in the spring of the year after harvest. If 

there is an indemnity paid under the farmer’s Yield Protection or Revenue Protection policy, the indemnity 

amount from that policy is subtracted from any loss under the margin policy. Premiums are also adjusted 

when both policies are purchased.

Equations and examples for determining margin indemnity* 

Equation Example

Expected 

margin

(expected county yield × projected price) − expected cost (180 bu./acre × $4/bu.) − $320/acre = 

$400/acre

Margin 

deductible 

expected revenue × (1 − coverage level) (180 bu./acre × $4/bu.) × (1 − 0.95) = 

$36/acre

Trigger 

margin

expected margin − margin deductible $400/acre − $36/acre = $364/acre

Actual 

margin

(actual yield × harvest price) − actual cost (160 bu./acre × $3.80/bu.) − $330/acre 

= $278/acre

Margin 

indemnity

trigger margin − actual margin $364/acre − $278/acre = $86/acre

* Adapted from Margin Protection Overview for 2018 (PDF, 463 KB) by Watts and Associates. See these resources by the 

USDA Risk Management Agency: Margin Protection for Federal Crop Insurance (PDF, 363 KB), Margin Protection for Corn, 

Rice, Soybeans and Wheat, and the Margin Protection Plan of Insurance Standards Handbook (PDF, 179 KB). See also the 

Margin Protection Premium Estimator and Price Discovery web page of Watts and Associates.