Episode 61 - Margin Protection (MP) and Margin Coverage Option (MCO) Sales Closing Date for Corn and Soybeans is September 30, 2025

Ryan Loy and Hunter Biram sit down to talk margin insurance. They break down Margin Protection and the Margin Coverage Option, how each fits with other crop insurance plans, and the signup windows. Hunter also walks through the Margin Protection Payment Estimator tool to show how Arkansas producers can use it to check breakevens and potential payments for the 2026 crop year. 

Transcript

00;00;00;00 - 00;00;26;19
Dr. Ryan Loy
Margin protection sales closing date for corn and soybeans is September 30th. Margin protection uses an earlier price discovery window than traditional crop insurance. Margin coverage option, MCO, is now available for rice in Arkansas. That and much more on this episode of Morning Coffee and Ag Markets.

00;00;26;21 - 00;00;30;29
Dr. Ryan Loy
My name is Ryan Loy, and in the studio today I have Dr. Hunter Biram. Hunter, how are you?

00;00;31;01 - 00;00;32;21
Dr. Hunter Biram
I'm doing good, Ryan, how are you?

00;00;32;22 - 00;00;44;19
Dr. Ryan Loy
I'm doing well. It's been a... it's been a crazy week. I've been in and out of the office taking care of the old dog and stuff like that. Make sure he doesn’t... the ancient dog, making sure he doesn’t pee in the house. He can't hear, he can barely see, but he's still going.

00;00;44;22 - 00;00;45;21
Dr. Hunter Biram
So what kind of dog is it?

00;00;45;22 - 00;00;50;29
Dr. Ryan Loy
He's a German shepherd. I think he's 14, which I'm like, I didn't even know that a German shepherd could.

00;00;51;01 - 00;00;51;15
Dr. Hunter Biram
Live that long.

00;00;51;16 - 00;00;57;19
Dr. Ryan Loy
That's right. Yeah, but taking care of him and just kind of in and out and... Yeah, but other than that, just working on some things. What about you?

00;00;57;19 - 00;01;17;04
Dr. Hunter Biram
Well, it has been a big week. Right now, just trying to explain what's happening in the farm economy, especially in Arkansas, and had an interview with the UALR radio station today. I believe that they’re an NPR affiliates. I had that interview this morning and yeah, now working on margin protection. Had a visit with the developers of Margin Protection Crop Insurance

00;01;17;04 - 00;01;23;29
Dr. Hunter Biram
yesterday, Watson Associates, and also visited with them about the margin coverage option. So really excited to dive into that today.

00;01;24;02 - 00;01;40;19
Dr. Ryan Loy
Absolutely. And I know that both of us have been just taking, you know, media calls left and right, trying to talk about the state of the ag economy right now. It's... it's bad. And, you know, it's, you know, we get these calls constantly to try to share and, and make sure that everybody, everybody knows what's going on and understands really what's happening.

00;01;40;19 - 00;01;50;17
Dr. Ryan Loy
And so I know the farmers appreciate it... what you do, and everything. And I know you were on PBS. You did some things with public radio. What else did you do? You've done a few things in the last week or two.

00;01;50;24 - 00;02;02;13
Dr. Hunter Biram
I was on RFD last week. That's right. Talking about the Mississippi River. And I got a call from Brownfield Ag, I think, we talked with them last week about the river as well. And, you were on Iowa PBS?

00;02;02;13 - 00;02;25;23
Dr. Ryan Loy
Yeah, I was yesterday. Yeah, that was very interesting. It's a very cool thing. I didn't realize how wide of a reach they had. He was telling me that, like, SUNUP at Oklahoma State runs it. I mean, a bunch of states run it on their local stations. So, I thought that was interesting. But it was a very interesting discussion, especially coming from that Midwest perspective, where they may not be as exposed to some of the risks and issues we have down here right now.

00;02;25;23 - 00;02;30;20
Dr. Ryan Loy
So it was interesting to get that perspective and then be able to share what's going on in the South towards those people.

00;02;30;22 - 00;02;50;13
Dr. Hunter Biram
Yeah. You know, one thing that's, interesting, as I was prepping for this interview with UALR, one thing that they were wanting to know is, is what's having Arkansas unique? And, I actually looked and I mean, you look in the Midwest, I mean, Midwest stands to lose quite a bit in revenue, in terms of receipts, I think, I believe Illinois was about $1 billion year over year.

00;02;50;19 - 00;03;07;08
Dr. Hunter Biram
That’s what RAFF, the Rural and Farm Finance Policy Analysis Center, that's what they were projected for ‘25 for Illinois. And I believe it was three quarters of $1 billion for Indiana. And I think it was about 860 million-ish dollars for Iowa. North Dakota, about $1 billion. So, I mean, like, it’s not an isolated incident.

00;03;07;08 - 00;03;25;15
Dr. Ryan Loy
Yeah, no, not by any means. And one of the things I saw yesterday, I think Terrain and a couple of the farm credits put it together. They kind of estimated what percent of the grain capacity, grain storage capacity was going to be used this year. And Arkansas was well over 100%, and so were most states. I think every state was well over 100%.

00;03;25;15 - 00;03;34;06
Dr. Ryan Loy
I think that tells us exactly what, kind of, the expectations are going forward here for harvest. So anyway, you know, there's bunch of things out there. You can go see Hunter, talk about it.

00;03;34;06 - 00;03;36;16
Dr. Hunter Biram
And you can see Ryan, too, just Google him.

00;03;36;19 - 00;03;49;25
Dr. Ryan Loy
Well yeah. That's right. So Hunter, I know we mentioned we’re going to be talking about margin protection today. And just to kind of kick us off, I want to ask, you know what exactly is margin protection insurance and how does it differ from traditional revenue or yield protection products that we've talked about before?

00;03;50;00 - 00;04;11;04
Dr. Hunter Biram
Yeah. So the highest level answer I can give there is that margin protection, provides a margin guarantee that protects your margin. So we’re talking about operating margin. So revenues minus operating costs. There are several things that are included. But actually what I've brought in here today into the studio is my computer. We're going to look at the decision tool, which there’s a link to in the newsletter, just to kind of walk through some things that are in margin protection.

00;04;11;04 - 00;04;28;00
Dr. Hunter Biram
So I've got four different steps here, four different panels. One is going to be the state county crop information. And so what that's going to do is, that'll pull up yields at the county level. Because this is a county level margin protection, or really, it's margin protection but based on expected revenue.

00;04;28;02 - 00;04;30;12
Dr. Ryan Loy
Expected revenue at the county, right? Not at the farm level?

00;04;30;12 - 00;04;52;07
Dr. Hunter Biram
That's right. And so that differs by crop, differs by irrigation practice within the crop as well. And so that's the first step. And so that's again, to answer your question, county level yield and futures crop price for December for 2026 will be December 2026 futures, is what the guarantees will be based on. County level yield, futures price.

00;04;52;07 - 00;05;14;08
Dr. Hunter Biram
There's your revenue. On the inputs side of things, you're looking at urea, DAP, potash, diesel, and interest. And so these are going to be your expenses that are going to be factored into your margin. When you're trying to guarantee a certain margin with this program. The interesting thing is, you know, margin protection makes no effort to try and estimate farm level expenses.

00;05;14;08 - 00;05;23;21
Dr. Hunter Biram
It'd be very, very, very difficult to do because management prices are all over the board, so it's not to fault them. I think it's just a fact of the matter. And just, I think it's something that's very difficult to do.

00;05;23;23 - 00;05;25;20
Dr. Ryan Loy
Yeah. Very difficult to capture. Right.

00;05;25;23 - 00;05;42;03
Dr. Hunter Biram
So I'm not faulting them at all. But I do want to make that distinction. So when we look at these prices, so like, urea price is going to be based on a futures price. DAP also on a futures price, the potash price is actually a static price that's based on the USDA AMS Illinois production cost report. That's where potash comes from.

00;05;42;03 - 00;06;01;23
Dr. Hunter Biram
And it's static. What does that mean? It doesn't mean that you're going to shock yourself every time you get out of your truck like I do. That's not the static that we're talking about. Static in the sense of, the potash price that's used in guaranteeing margin here is not different between planting and harvest. It’s the same. But the urea price, the DAP price, is subject to volatility.

00;06;01;23 - 00;06;26;12
Dr. Hunter Biram
The diesel prices are subject to volatility. The interest rates are subject to volatility. But potash is static. And so the futures contract for DAP is the DAP FOB NOLA futures contract, DFN, the futures contract for urea is the FOB US Gulf futures contract. For diesel, they actually use the New York Harbor ultra low sulfur diesel future or heating oil futures contract.

00;06;26;12 - 00;06;34;26
Dr. Hunter Biram
And then for the interest rate, it’s going be the 30 day fed funds futures contract. So those are going to be the futures contracts whenever we're talking about the expenses side of margin.

00;06;34;29 - 00;06;51;02
Dr. Ryan Loy
And so, Hunter, let me ask you real quick, when we're looking at this tool. And by the way, to our listeners, I know you can't see it. We got video coming soon for this exact reason. But, is this the methodology that you've laid out here in your tool how RMA would calculate it for a given user?

00;06;51;02 - 00;07;10;24
Dr. Hunter Biram
Yeah, it, yes, it is going to be the exact same formulation. This is based on what Watson Associates came up with and what RMA would do. So this will be I mean, if you go in, for example, let's just say you put in Arkansas County, Arkansas, corn, irrigated corn. We're going to use the harvest price option, which we can talk about later.

00;07;10;26 - 00;07;32;23
Dr. Hunter Biram
The 95% coverage level at a 100% protection factor. And then what I want to do here is actually use a harvest county yield of 186 bushels per acre. Why is that? Well, if you look at the Arkansas county expected yield, it's 186. Okay. So why do I want to use the same Harvest County yield as expectation? Because I want to see what kind of price protection we can get here.

00;07;32;23 - 00;07;50;06
Dr. Hunter Biram
So the expected futures price that's currently being used for corn is at $4.55. And we're nearing completion of price discovery. And that ends on September the 14th. Okay. And so we're at $4.55 right now if you go to marginprotection.com, it'll tell you that. So then, let's click on the What If analysis tab. And so if you look at the What If analysis tab, okay.

00;07;50;06 - 00;08;00;18
Dr. Hunter Biram
Clearly there will be no indemnities or no margin loss that's paid. That's a margin loss column in there. No margin loss, no indemnity paid. Why? Because we're at price expectation and at yield expectation.

00;08;00;18 - 00;08;07;29
Dr. Ryan Loy
At the county average, right? So you're basically putting in the tool and saying well my farm got exactly the county yield. So I won't get an indemnity from that.

00;08;07;29 - 00;08;22;20
Dr. Hunter Biram
Yep. We got the county yield and the price didn't change. Yep. So, with both of these, it's kind of our baseline scenario, okay. So how do we know the price at which a farmer is going to start to see an indemnity net of premium. Well we've got that in here. We're going to go to the break even price tab.

00;08;22;20 - 00;08;40;01
Dr. Hunter Biram
And so what this shows is across various harvest prices we can see what the net indemnity is per acre. So let's just start back here at around $4. At around $4 you're looking at about $30 an acre. That's going to be indemnity that covers your producer premium, we’re receiving a check. So that's $30 net.

00;08;40;02 - 00;08;43;07
Dr. Ryan Loy
Yeah that's net. So already over covering your premiums like you said okay.

00;08;43;08 - 00;09;03;06
Dr. Hunter Biram
That's right. Now if we go down to this, I've got listed break even price $4.13. We see that, okay, your indemnities that you receive, you're receiving indemnity, but it's only enough to cover your premium. Nothing more than that. So that's our quote unquote breakeven price of $4.13. Then when you get above $4.13, you start to see net indemnities go negative, pretty much.

00;09;03;10 - 00;09;21;09
Dr. Hunter Biram
Okay. So let's look then, $4.13 is our magic breakeven price. So keep the harvest county yield the same. Let's type in the $4.13. Go to what if analysis. And what do you see? We see a margin loss is paid out at 95%. Okay. All right 95% producer premium in this case, is essentially the same. There's like a ten cent difference.

00;09;21;16 - 00;09;41;14
Dr. Hunter Biram
That could be a rounding error. But more or less, that's going to be the breakeven price, okay. Okay. So then what happens if we go below $4.13? Let's just do $4. What if the price comes to $4 a year from now? Now we're starting to see net indemnities that are positive. Actually, at 95%, you're seeing about a $24 positive net indemnity per acre if the price were to fall to $4.00.

00;09;41;20 - 00;10;00;15
Dr. Hunter Biram
Okay. Let's put that into context today. So last year when people were looking at 2025 decisions, it was literally a year ago. Interestingly enough, we had the same exact projected futures price as we do right now. That's super interesting. The question now is what was the harvest price for this year? Because now we've already gone through that for ‘25.

00;10;00;15 - 00;10;17;27
Dr. Hunter Biram
We're done with that. It's $4.13. $4.13 is the breakeven price from before. So if we just type in the $4.13 and again the premiums are going to change a whole lot. The yields aren't going to change a whole lot. So this is very, this is almost the same as 2025. All right. Pretty much it was a breakeven, quote unquote, a breakeven year for someone who had margin protection.

00;10;17;27 - 00;10;21;11
Dr. Hunter Biram
They received enough indemnity pretty much to cover their premium this year.

00;10;21;14 - 00;10;32;19
Dr. Ryan Loy
So basically what they're doing is they take that forecasted price and that's what they're comparing it to for your actual harvest price at that county level, right? And what those, that difference is there, you're going to get paid on that margin. Is that the idea here?

00;10;32;22 - 00;10;52;24
Dr. Hunter Biram
Yeah. So I think the best way to describe it is it's very similar to a revenue... area revenue protection. There will be cost and there's a trigger margin. All those things, there's fact sheets in the decision tool and in the newsletter that you can go in and read. But really the main takeaway that I want to hit home on is the potential to lock in a futures price right now.

00;10;52;27 - 00;11;12;29
Dr. Hunter Biram
Okay. Now I want to put a big disclaimer out there. I understand when it comes to cash prices, and harvest, and harvest revenues that a... for, let's say, a $4.13 futures price and about $3.70 or $3.80 cash price is not good. Right. And it is not profitable. And we have covered that extensively. You and I have and Scott, I mean we've covered that extensively.

00;11;12;29 - 00;11;33;17
Dr. Hunter Biram
But we have to get our minds in the margin protection insurance space. It's different. For lack of better phrasing, it's not exactly in a 100% real world, is what I'll say. They're trying to model the real world with this product. Does that mean it's a bad product? Absolutely not. It doesn't mean that it's a bad product. It means we ought to think about it differently because again, county versus farm yield, there's basis risk there.

00;11;33;17 - 00;11;58;11
Dr. Hunter Biram
Futures versus cash price. There's basis risk there. On the input side of things, margin protection does a really good job and the best they can of trying to estimate usage of inputs in the quantities. Those are fixed. What's random is the price right? Right okay. So again bear with me, and just think about margin protection a little bit differently than you would your farm level margin like in, like in the real world, like cash terms like you can hold the cash in your hand.

00;11;58;11 - 00;12;00;22
Dr. Hunter Biram
It's different just because of those factors that I just mentioned.

00;12;00;22 - 00;12;13;19
Dr. Ryan Loy
Correct me if I'm wrong, but essentially you're trying to capture the margin of your self compared to the county. That's what you're capturing rather than in the revenue protection, you're looking at your personal price that you received versus some price, whereas this is how do you shake up against the county?

00;12;13;19 - 00;12;31;24
Dr. Hunter Biram
In protection terms, it's not correct, but in the sense of, you want to think about your farm level basis risk, that is a correct way to think about it. So if your margins, if you think your margins are, say that they're perfectly correlated with the county, okay, this is going to be a really good product for you because your margins are the same as the county.

00;12;31;24 - 00;12;48;11
Dr. Hunter Biram
And so this will be a great way to capture your margin risk, is at the county level, but in reality, what it actually does, is it looks at the county. It doesn't do anything with your farm. Okay. There are no farm yields considered, there's no farm input usage quantities considered. Everything's at the county level.

00;12;48;13 - 00;12;59;10
Dr. Ryan Loy
Okay. And when we're looking at these coverage levels versus a protection factors, as you'd stated, you chose a 95%. Can you just kind of maybe walk through the differences between that protection factor coverage level and what they each do?

00;12;59;17 - 00;13;22;09
Dr. Hunter Biram
Yeah. So the coverage level is going to more or less be guaranteeing, let's say, 95% of your expected margin. Okay. That's pretty much what's going to... that's the highest level to describe it. So if you go to a lower level you're going to be covering a lower, lower margin. Yeah a lower percentage of the margin. And so really when you change this in the tool to 70%, you're going to start to see a difference in your breakeven price.

00;13;22;11 - 00;13;40;04
Dr. Hunter Biram
Now you're breakeven price has to be like $3 okay. Why? Well because you have to have a deeper loss. Yep yep. And so this would be a far deeper loss than $4.13. You're looking at about a dollar difference at the 70% coverage level. Now, is there any upside to the 70% coverage level? Well sure. The premium is $1 an acre.

00;13;40;06 - 00;13;50;21
Dr. Hunter Biram
Yeah that's it. But think about it folks. That's a very low probability event that, I mean, I would almost give this a zero probability, frankly, of a $3.18 futures price. Futures price?

00;13;50;21 - 00;13;53;22
Dr. Ryan Loy
Yeah that’s... We'd be in real trouble. [...]

00;13;53;22 - 00;14;18;15
Dr. Hunter Biram
It just seems so unlikely. I mean, even a cash price that low seems almost zero probability of that happening. So anyway, that whenever I clicked on the percentage it takes you to the breakeven price. And so if you look at the what if, but you can see in the what if the trigger margins that column, the trigger margin increases from $185 or 70% to almost $400 an acre at 95%.

00;14;18;15 - 00;14;39;11
Dr. Hunter Biram
So you're insuring more at the higher coverage level. And that's how the coverage level works. Okay. Now the protection factor, that's something that, you know, the way to think about it is the factor ranges from 80% to 120%. What does that mean? Think about it this way. If you think your margins are higher than the county, you're going to use a higher protection factor.

00;14;39;11 - 00;15;05;07
Dr. Hunter Biram
So say 120. And what that means is you're going to get more indemnity. Your indemnity increases by 20% okay. So you know at 100% let's look at $4.13, 186, at the 95% coverage level. This is where we were, base case. Let's shift that over to 120%. We now have a bigger margin loss than we did from before. So $35.76 is what it was,

00;15;05;07 - 00;15;16;23
Dr. Hunter Biram
Base case, that’s your base case margin loss, if you go to 120% protection factor, you’d have like a $43 margin loss. So it went up by about 7 or $8. Okay. Or about 20% more margin loss.

00;15;16;24 - 00;15;32;26
Dr. Ryan Loy
Makes sense. Totally. So. And then for all the listeners, you know, I know we're going through this tool now. And I know we'll provide a link to this tool in the newsletter this week. And please feel free to use it. Reach out to Hunter. I know he gets really, you know, he really enjoys helping people work through these tools and they are fantastic tools.

00;15;32;26 - 00;15;54;21
Dr. Ryan Loy
So reach out to him and be sure to, you know, ask any questions you may have on this product. One other question I've got for you. You know, I know that we've got this price discovery window and you had mentioned that, you know, so how does this price discovery window, which is different, and as I understand, it's August through September, basically where we're at now, how does that benefit producers compared to that traditional January-February window for the other protections that we've talked about?

00;15;54;21 - 00;16;16;04
Dr. Hunter Biram
Yeah. So I'll just clear up that right now we're talking about corn and soybeans, primarily, because the sales closing date is September the 30th for the 2026 crop year. And so I'll talk about corn and beans and focus on that first. So the price discovery period for corn for 2026 margin protection is August 15th through September the 14th.

00;16;16;07 - 00;16;44;09
Dr. Hunter Biram
And so, like that's, we are in that discovery window right now. Whereas if we're a revenue protection, if we're looking at a revenue protection policy for corn, that price discovery is going to be, I think, Jan 15th through February 14th, correct. For revenue protection, your MPCI for like individual coverage. So you got that to think about. Soybeans, projected price discovery for soybeans is the same as corn. Then the harvest discovery period for soybeans is 10/1 through 10/31. Okay.

00;16;44;11 - 00;17;05;17
Dr. Hunter Biram
So keeping that in mind, earlier price discovery period. And just given typical seasonality of the futures markets, I mean, there is some potential to secure possibly a higher price now for corn and beans under margin protection than you would with maybe your MPCI. Okay. In the wintertime, you know, there'll be folks that that would say, don't think of it as that.

00;17;05;17 - 00;17;17;22
Dr. Hunter Biram
And it's, I'm going to say the same thing, don't think of it exclusively as that. But I would argue that, like, there could be some potential to try and lock in. Pretty much think of it as similar to a put option where you’re going to pay a premium more or less to secure a higher price. Yeah, right.

00;17;17;24 - 00;17;30;13
Dr. Hunter Biram
That's marginal protection. I mean, that's what I'm talking about last year. And what I said earlier, we had $4.55 was the price. The expected price. And at 95% with the $4.13 price for right now, it actually ended up breaking even for folks this year.

00;17;30;13 - 00;17;48;21
Dr. Ryan Loy
Now that makes sense to a completely. It's literally the most plainly named like in terms of exactly what it's doing. And that's the exact name of the product, right? It is protecting your margin. And you're just... kind of the tool allows you to go through certain scenarios to see what's the most optimal for you based on what you expect for this year, and very useful stuff.

00;17;48;21 - 00;17;56;06
Dr. Ryan Loy
And so if folks want to sign up for this and participate in this program for ‘26 crop, what do they need to do and what's the time frame on that?

00;17;56;14 - 00;18;14;29
Dr. Hunter Biram
Yeah, I think just visit with your crop insurance agent, especially if you already have one. And most folks probably already have one. But if you don't I mean, USDA RMA has a crop insurance agent finder. So you can just Google or, you know, USDA RMA crop insurance agent locator. I think that should pull up a link to help you find your agent or talk to a friend and see if they know of an agent.

00;18;15;01 - 00;18;36;24
Dr. Hunter Biram
I think most folks probably would already have an agent, so just talk with them about this opportunity and, just seek their advice as well. And I mean, talk with your lender, too. I mean, like, this is a serious time. And I mean, these premiums are added expense at a time when expenses need to be cut. So I'm not saying you have to do this, but I'm saying that it is an option for some out there that may, that may find this a useful tool.

00;18;36;24 - 00;18;43;18
Dr. Hunter Biram
So not discounting how tough of a time it is, but also understand that, you know, maybe there are some out there that would be interested in a product like this.

00;18;43;18 - 00;18;57;19
Dr. Ryan Loy
And just another way to, you know, just another risk management tool, right, at the end of the day. So this is, this is really great stuff. And Hunter, I greatly appreciate you coming in the studio today to talk about this. This is very important stuff. Please feel free to reach out to Hunter or any one of us if you have any questions on this.

00;18;57;19 - 00;19;02;24
Dr. Ryan Loy
In the meantime, thank you all so much for tuning in. Stay tuned for your market report. Bye bye now!