Multi-Peril Crop Insurance


Multi-Peril Crop Insurance (MPCI) is the most common form of the federally subsidized crop insurance programs, protecting your operation from a wide variety of perils.  The program has two primary options:  Yield Protection and Revenue Protection.  With both options you select from 50 to 85% coverage of your farm’s average production history (APH) which is the ten-year average yield per acre of the crop you are insuring.  Also, there are a variety of special endorsements and options available to customize the policy. 



RP covers production, but also includes an additional layer of protection against revenue loss due to price changes.  The grain price used to set the minimum revenue guarantee is the higher of the projected price or the harvest price (for corn, cotton and soybeans, October is the harvest price discovery month).  An indemnity payment is triggered when your actual crop revenue (harvested yield X coverage level X harvest price) falls below your minimum guarantee (APH X coverage level X higher of projected or harvest price).


Same example scenario but now with RP: Farmer A’s numbers again: 120 bu/ac APH × 80% selected coverage level gets him to 96 bu/ac protected.  With the projected price of $3.95, he is revenue guarantee is $379.20 ($3.95 × 96).  His harvested yield in this scenario is 75 bu/ac.   Possibility #1:  harvest price drops to $3.50.    Farmer A will receive a loss payment of $116.70 to make up that difference ($379.20 – {75 X $3.500} = $116.70).  Possibility #2: harvest price goes up to $4.30!  The guarantee is recalculated with no additional premium, 96 × $4.30 = $412.80. Now the loss is calculated, $412.80 – (75 X $4.30) giving Farmer A $90.30 per acre.  Possibility #3:  Harvest price remains the same as the projected price, so the indemnity payment is the same.


The YP policy insures your grain production, based on your operation's APH.  You select your desired coverage level, and that determines the number of bushels your policy will guarantee (APH X selected coverage level).  The projected price (an amount established before sales closing and calculated by taking the average of one month of commodity prices from the Chicago Board of Trade) will be used to calculate indemnity due in the case of a yield loss. 


Here’s an example scenario:  Farmer A has an average corn production of 120 bu/ac and has selected 80% coverage on his yield plan.  He therefore has an insurance guaranteed yield of 96 bu/ac.  At harvest, he only has a yield of 75 bu/ ac. The projected price for corn is $3.95.   To determine Farmer A’s loss, take the difference between the guaranteed and actual yield (96 – 75 = 21) and multiply that by the projected price ($3.95 X 21).  $82.95 per acre indemnity will be paid to Farmer A for that loss.