Earlier this summer, the U.S. Department of Agriculture rolled out Margin Protection, a “next generation” crop insurance product available to rice producers in select counties in Arkansas, California, Louisiana, Mississippi, Missouri, and Texas for the 2016 crop year.
The price discovery period for rice is set to begin onDecember 15, and expected margins and premiums will be updated daily thereafter. The program was authorized by the 2014 Farm Bill and has been carefully developed by USA Rice in partnership with the consulting firm, Watts and Associates, Inc.
During negotiations for the 2014 Farm Bill, USA Rice aggressively advocated for a product to be developed that would enable producers to insure against losses to expected margins. Margin Protection takes a big step forward for crop insurance and will allow producers to protect their margins this closely for the first time.
The product begins by determining an expected revenue by multiplying the projected price by the expected yield in a county (like existing area plans). From there, Margin Protection takes into account certain variable input costs (i.e., diesel, operating loan interest, and fertilizer) that are subtracted from the expected revenue to determine the expected margin. The grower then selects a coverage level (up to 90 percent), which is applied to the expected margin to establish a trigger margin. If the price of rice falls, the county yield is less than expected, or the prices of fuel, fertilizer or interest increase, the grower may receive an indemnity for the margin shortfall.
Margin Protection provides producers with a full package of risk coverage, including protection against harvest price decline, yield loss, and input cost increases or any combination thereof. Margin Protection gives producers the ability to mitigate the potential of a “triple whammy” where each of these risk factors occur in a single production cycle. In a feature unique to this product, Margin Protection indemnities may exceed expected margins, compensating growers beyond the value of their coverage trigger to protect growers from potentially negative margins.
Margin Protection is a county/parish-based program. Yields within counties can vary considerably and individual grower yields can be different from overall county averages. To protect grower’s individual yields, Margin Protection can be purchased not only as a stand-alone policy but also in conjunction with a traditional individual policy.
The sales closing date for rice Margin Protection is the same as that of existing area and individual plans, with the date dependent on your county/parish and state.
“All the work USA Rice has done on Margin Protection has finally come to fruition,” said Joe Mencer, an Arkansas rice farmer and chairman of the USA Rice Crop Insurance Task Force. “Since rice farmers generally don’t participate in crop insurance, Margin Protection will give us a chance to insure a portion of our losses in a way that’s workable and benefits our unique industry.”
Margin Protection may be offered through your existing crop insurance agent so growers are advised to ask their agent for further details. A simulator is available to calculate potential Margin Protection premiums and a range of estimates per county are available here.