Crop Insurance Explained: MPCI, Revenue Protection, and Crop-Hail for the Working Farm

What is multiple peril crop insurance and how does it work?

Multiple peril crop insurance, often called MPCI or federal crop insurance, is a federally backed program that protects farmers against crop losses from natural causes such as drought, excess moisture, freeze, hail, wind, insects, and disease, and in revenue plans also against price declines. It is administered by the USDA Risk Management Agency, but policies are sold and serviced by private approved insurance providers through licensed crop insurance agents. Policy terms, rates, and key dates for a crop and county are set by the Risk Management Agency, not the individual insurer. What differs is service, agent expertise, and how well your choices fit your operation.

• Administered by the USDA Risk Management Agency.
• Sold through approved insurance providers and licensed agents.
• Covers natural causes of loss across a wide range of crops.
• Losses from poor farming practices are generally not covered.

What is the difference between yield protection and revenue protection?

Yield protection pays when your harvested production falls below a guaranteed level, while revenue protection pays when your revenue falls below a guarantee because of low yields, lower prices, or both. Both rest on your production history, but revenue protection adds price protection based on commodity futures prices. Revenue protection is the most widely purchased plan for major row crops such as corn, soybeans, and wheat. In its standard form the guarantee can rise if the harvest price exceeds the projected price, which helps a farmer who must buy grain to fill forward contracts after a short crop. A version that excludes that increase costs less.

How does actual production history affect crop insurance coverage?

Actual production history, commonly called APH, affects crop insurance coverage because it sets your approved yield, the base used to calculate your guarantee and premium. APH is generally built from your own reported yields over recent years, commonly four to ten, with county-based transitional yields filling in where records are limited. Certain optional adjustments can soften the effect of a disaster year, subject to eligibility.

• Report production accurately and on time every year.
• Keep scale tickets, settlement sheets, and storage records.
• Ask about yield adjustment options for disaster years.
• Review your APH database with your agent before sales closing.

What coverage levels and subsidies are available in federal crop insurance?

Federal crop insurance commonly offers coverage levels from 50 percent up to 85 percent of your expected yield or revenue, and the federal government pays a share of the premium that varies by coverage level and unit structure. In general the government's share is higher at lower coverage levels and when you choose enterprise units, which combine all your acres of a crop in a county. Catastrophic coverage, known as CAT, covers 50 percent of yield at 55 percent of the expected price, with the premium fully subsidized and an administrative fee per crop per county. Many operations buy up to higher levels because CAT alone leaves much of their investment exposed.

• Coverage levels commonly range from 50 to 85 percent.
• CAT coverage requires only an administrative fee.
• Enterprise units typically receive a higher premium subsidy.

Why do crop insurance sales closing dates and acreage reporting deadlines matter?

Crop insurance sales closing dates and acreage reporting deadlines matter because missing them can prevent coverage changes, reduce your protection, or void coverage for affected acres. The sales closing date, which varies by crop and region, is the last day to buy a policy or change your plan, coverage level, or units. After planting you must report acres by the acreage reporting date, and prompt notice of loss is required when damage occurs.

Should a farm buy private crop-hail insurance in addition to MPCI?

Many farms buy private crop-hail insurance in addition to MPCI because crop-hail pays for hail damage on a field-by-field basis, while MPCI losses are measured across an entire unit. A hailstorm that flattens one field may not trigger an MPCI payment if the rest of the unit yields well. Crop-hail is sold by private insurers, is not federally subsidized, and can often be bought during the season with a short waiting period. Crop insurance does not replace your farm property and liability policy, which protects buildings, stored property, and liability to others.

Ready to review your crop insurance program?

If you want to make sure your crop insurance choices fit your operation and your lender's requirements, we would be glad to walk through the options with you. Schedule a conversation at calendly.com/grandbayfinancial.