Margin Protection

Margin Protection (MP) is a tool for your risk management plan that you as a farmer have at your disposal. Most producers don’t know about it as it does have some moving parts to it. MP allows you the opportunity to lock in an insurance price period right now instead of waiting until February of 2024 with your base MPCI revenue policy. Current corn price discovery is trading around $5.08/bushel. Soybean price discovery is currently $12.93/bushel. This policy allows you to take price risk off the table between now & February of next year.

MP is a 95% policy that factors in price, yield, & subtracts out expected costs resulting in a “margin” per acre. This margin is what you are insuring. Other insurance products do not factor inputs into the equation. As a result MP is a completely different product than most producers are used to purchasing. If you book your inputs early & do not want to market grain yet, MP is a great tool to use to take some risk off the table and avoid speculation.

I have used MP in my own operation for the last few years. I generally book my fertilizer needs for the following year in late summer. Once I know my “updated” projected cost of production I can either make grain sales to matchup with fertilizer bookings or purchase MP. By utilizing MP with its established prices higher than my break-even I know I can lock in a profit for 2024 & I am not forced to make grain sales to avoid speculating . MP still allows me the upside in the market to sell my grain if that does happen. If the market declines, I have peace of mind knowing I have locked in a price floor. If I want to bullet proof my plan I can make some sales at the same time to cover the dollars I booked in inputs if the market allows. At the price levels listed above I think most operations will be able to lock in a profit margin for 2024.

Margin Protection can be thought of as a subsidized (44%) put option that in most cases is cheaper than buying a futures option in the private market. This product is not for everyone, as each operation is different; however I believe it is still prudent to have an understanding of this product regardless if you purchase it or not. There is no other type of business outside of agriculture that can purchase an insurance policy to guarantee their business operates at a certain margin.

Please reach out if you are interested and want to learn more. Sales close deadline is 9/30/2023 for the 2024 crop year.