Price is one of the biggest contributing factors to a Margin Protection claim payment. Right now the initial price is tracking around $5.09 for corn. Below are a few examples that illustrates Margin Protection’s sensitivity to declining prices at harvest.

 

Let’s take a look at a few 95% Margin Protection price scenarios when all other factors remain unchanged.

  • If price would drop 10% to $4.59 by harvest of 2022, Margin Protection would pay out $49.84 per acre.
  • If price would drop 15% to $4.34 by harvest of 2022, Margin Protection would pay out $100.59 per acre.
  • If price would drop 20% to $4.08 by harvest of 2022, Margin Protection would pay out $153.37 per acre.

Margin Protection triggers very quickly in a price declining environment.

 

Remember that Margin Protection payments are offset by Revenue Protection payments.

 

Let’s see how the above scenario changes if 85% Revenue Protection price set in February is at the same $5.09. 

  • If price would drop 10% to $4.59 by harvest of 2022, Margin Protection would pay out $49.84 per acre. Revenue Protection $0.
  • If price would drop 15% to $4.34 by harvest of 2022, Margin Protection would pay out $100.59 per acre. Revenue Protection $0.
  • If price would drop 20% to $4.08 by harvest of 2022, Margin Protection would pay out $101.27 per acre. Revenue Protection $52.09.

You can see the power behind a 95% Margin Protection against the 85%  Revenue Protection.

 

Now let’s use the same scenario, but the Revenue Protection price in February comes in 5% lower at $4.85. 

  • If price would drop 10% to $4.59 by harvest of 2022, Margin Protection would pay out $49.84 per acre. Revenue Protection $0.
  • If price would drop 15% to $4.34 by harvest of 2022, Margin Protection would pay out $100.59 per acre. Revenue Protection $0.
  • If price would drop 20% to $4.08 by harvest of 2022, Margin Protection would pay out $144.38 per acre. Revenue Protection $8.98.

Now you can the difference in locking in a 5% higher price. Revenue Protection’s  payment reduced $43.11 in the third scenario (from $52.09 to $8.98).

 

If we are in a high price environment, it’s hard to know how long high prices will stick around. Establishing a high initial price for crop insurance is key. Again right now, Margin Protection is tracking around $5.09. How often do you see the chance to lock in a crop insurance price over $5?

If you compare Margin Protection premium against purchasing options, Margin Protection premiums are close, if not better. Plus, Margin Protection will account for reduced yields and increased input costs.