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What is MPCI
Multi-peril crop insurance (MPCI) is the backbone of the federal crop insurance industry. It is administered by the Risk Management Agency (RMA) which is part of the United States Department of Agriculture. As its name suggests, MPCI provides protection against a wide range of natural risks that can cause a crop loss, including drought, excessive moisture, hail, wind, frost, insects and disease.
What are the Different Types of MPCI Policies?
The most common types of MPCI policies are:
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Actual Production History (APH): Protects a producer’s yield based on their own historical averages, covering losses due to natural causes like drought, hail, and disease. Producers select the percentage of yield and price to insure, and if actual production falls short, an indemnity is paid based on the difference.
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Revenue Protection (RP) policies cover both yield losses due to natural disasters and revenue losses caused by price changes between planting and harvest. The policy pays an indemnity if the value of the harvested crop falls below the guaranteed revenue, using the higher of the projected or harvest price.
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Yield Protection (YP) policies insure against yield losses due to natural causes, similar to APH policies, but use a projected price to calculate coverage. Producers select a percentage of that price—between 55% and 100%—to insure their approved yield.
Accordingly, RP at a given coverage level will generally be more expensive than YP at the same coverage level because it covers a loss for both price and yield. Coverage levels typically range from 50% to 85%, in 5% increments, depending on the crop and county.
The APH is the basis for the yield component of RP and is the sole determinant of coverage for the YP policy. The APH can consist of both harvested or appraised yields for a given “unit” (discussed below) over the last 10 years of planted crops on that unit. If a producer has less than 10 crop years of history on a unit, then all the crop years would be used. If a producer has less than 4 crop years of history, then those missing years would be replaced with a transitional yield (T-yield). So an APH database will always have at least 4 entries and not more than 10 entries.
APH elections are optional tools that allow producers to adjust their yield histories to better reflect current production potential and mitigate the impact of unusual years. These elections can enhance insurance guarantees and provide more accurate coverage for individual farming operations. Main APH elections:
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Yield Exclusion (YE): Permits exclusion of actual yields from specific years when the county's average yield was at least 50% below the 10-year average, typically due to widespread disasters. This helps maintain higher APH yields by removing anomalously low years from the calculation.
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Trend Adjustment (TA): Adjusts historical yields upward based on county-level yield trends, accounting for technological advancements and improved farming practices. This helps ensure that insurance coverage reflects current yield expectations.
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Yield Adjustment (YA): Allows substitution of 60% of the T-Yield for low yields caused by natural disasters. Helps reduce the impact of a catastrophic year on your APH.
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Yield Cup (YC): Limits the decrease of the approved APH yield to no more than 10% from the previous year, providing stability in coverage by preventing significant drops due to a single poor year.
What is an Actual Production History (APH) Database?
How are the Crop Insurance Prices Determined?
For RP policies, two prices are used:
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Base Price: Determined before the sales closing date using the average closing price of a relevant futures contract (e.g., December corn) over a specific month (e.g., February).
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Harvest Price: Calculated the same way, but later in the year (e.g., October).
These futures prices, not the price the farmer actually receives, determine the coverage levels. The YP policy only uses the base price.
What is a Unit?
A unit is the smallest possible division of yields for a producer’s farms. That division is usually based on a section of land (640 acres). If a producer has two fields in the same section, they will be counted as in one unit for crop insurance purposes. There are other possible divisions, such as farm number, but the section is the most commonly used determinant of a unit.
To save premium, a popular option is to combine units together in an enterprise unit (EU) for the purposes of determining indemnities. While the production is kept separate for the APH databases, the losses and non-losses are summed together to determine if an indemnity is due a producer for that county/crop combination. The choice to use EU is made by the sales closing date on the application and can be changed from year to year.
What are the Key Dates for MPCI?
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Sales Closing Date: The last day to choose a policy, coverage level, and any options or elections. Dates vary by crop and county. (e.g., Wheat: Sept. 30; Sorghum: March 15 in Haskell County, KS).
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Production Reporting: Due 45 days after the sales closing date. At SCIS we try to get your production ahead of the sales closing date to help prepare the most accurate quotes for the upcoming year.
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Acreage Reporting Date: Also varies by crop and county. (e.g., Wheat: Dec. 15; Sorghum: July 15). At this time the producer will report all of the acreage for the crop on a unit basis. This acreage report then provides the information needed to generate the guarantee for each unit and ultimately the policy total.
How are Losses Calculated?
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Sales Closing Date: The last day to choose a policy, coverage level, and any options or elections. Dates vary by crop and county. (e.g., Wheat: Sept. 30; Sorghum: March 15 in Haskell County, KS).
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Production Reporting: Due 45 days after the sales closing date. At SCIS we try to get your production ahead of the sales closing date to help prepare the most accurate quotes for the upcoming year.
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Acreage Reporting Date: Also varies by crop and county. (e.g., Wheat: Dec. 15; Sorghum: July 15). At this time the producer will report all of the acreage for the crop on a unit basis. This acreage report then provides the information needed to generate the guarantee for each unit and ultimately the policy total.
How are Losses Calculated?
RP Policy (No Modifiers)
Base price: $5.00/bu
Harvest price: $4.50/bu
APH: 100 bu/ac
Coverage level: 75%
Actual yield harvested: 79 bu/ac
Base guarantee = APH x Coverage Level x Base Price
Base guarantee = 100 x 75% x 5 = $375/ac
Harvest revenue = Actual Yield Harvested x Harvest Price
Harvest revenue = 79 x 4.50 = $355.50/ac
Since base guarantee is greater than the harvest revenue, an indemnity is due
Indemnity = Base Guarantee - Harvest Revenue
Indemnity = 375.00 - 355.50 = $19.50/ac
YP Policy
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Base price: $5.00/bu
APH: 100 bu/ac
Coverage level: 75%
Actual yield harvested: 79 bu/ac
Base guarantee = APH x Coverage Level
Base guarantee = 100 x 75% = 75 bu/ac
Since the actual harvested yield is greater than the base guarantee, then no indemnity is due.
Assume a harvested yield of 70 bu/ac, in that case an indemnity would be due since the harvested yield is less than the base guarantee
Indemnity = (Base Guarantee - Harvested Yield) x Base Price
Indemnity = (75 - 70) x 5 = $25/ac
Why SCIS For Your
MPCI Policies?
This is just a small glimpse of the many options, elections, and products available for crops covered under the MPCI umbrella. Reach out to one of our SCIS agents today for information specific to your crop and county. At SCIS, we understand that no two farming operations are the same and do not believe in a one-size-fits-all approach. We strive to help our producers sort through and understand the various options available to them. With over 100 years of combined experience, the SCIS team takes the time to evaluate each operation's unique risk exposure, and build a personalized crop insurance plan that works. Our motto is “Service is the Difference” but we believe that service is more than just a motto, it's what sets us apart.