Protecting Your Farm with a Margin Protection Plan
You now have additional insurance options for protecting profits.
The one certainty of farming is uncertainty: You can’t know what the weather will bring, how the market will fluctuate and what your exact costs will be. Crop insurance, regulated by the U.S. Department of Agriculture’s Risk Management Agency (RMA) and subsidized by the Federal Crop Insurance Corporation (FCIC), covered about 85% of planted acreage for major crops and 73% of eligible specialty crops in 2015.. But, as Michael Vallery, farmer and partner at London, Ohio-based Vallery & Dorn Insurance, notes, “explaining crop insurance is kind of tough.” And now, crop insurance is changing. In the past, you could only get:
- Yield Protection (YP): Protects against crop yield lost to natural disasters, with specific restrictions on some crops based on acceptable farming practices. Payments are based on your farm’s previous yields.
- Revenue Protection (RP): Protects against losses in revenue and sales. Payment is also based on your farm’s previous yields.
- Area Risk Protection Insurance (ARPI): This functions like YP or RP, but payment is based on countywide estimates rather than your farm’s previous yields.
Now the RMA has approved Margin Protection Plans (MPP), which protect against an unexpected decrease in your profit margin, based on countywide yields. “So many factors are beyond the farmer’s control,” Vallery says about the need for margin protection. “You can be the best farmer and still lose your tail.” Here’s what you need to know.
- What is MPP? MPP provides coverage against an unexpected decrease in operating margin (revenue minus input costs), whether that decrease is a result of yields, commodity prices, increased prices of certain inputs, or any combination of these, all based on countywide averages rather than your farm’s history.
- When should you purchase MPP? To have MPP in place for the 2018 crop year, the deadline was September 30, 2017. Look for the 2019 deadline next fall.
- How can you purchase MPP? You can purchase MPP from a licensed multiple-peril crop insurance provider.
- Where is it available? Depending on the crop, MMP is available in select counties in Arkansas, California, Illinois, Indiana, Iowa, Kansas, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, North Dakota, Ohio, South Dakota, Texas and Wisconsin. Ask your insurance provider if it’s available for your crop in your county.
When you’re considering whether you can benefit from MPP, Vallery says, “You have to ask yourself how much risk you are willing to take on yourself. That number is different for every farm.” Talk with your accountant and your insurance provider about whether MPP might work for you in the future.
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