BIG PRICE SWINGS AND WHAT THEY MEAN
The window is now closed, and the final harvest input prices are in for Margin Coverage Option (MCO). Input costs rose substantially from their projected levels set last fall. For MCO policyholders, that is a meaningful development. We will showcase 3 county yield modeling examples to demonstrate the impact of these costs:
High Yield County: $18.63 indemnity/acre
Medium Yield County: $17.14 indemnity/acre
Low Yield County: $12.55 indemnity/acre
FINAL HARVEST INPUT PRICE
During the projected price discovery period (Aug 15 – Sept 14, 2025), input costs were established based on futures averages. During the harvest input discovery period (Apr 1 – 30, 2026), those costs were set for the final harvest input prices. Here is how each input moved:
Diesel and urea saw the largest increases, driven in part by ongoing global disruptions in energy and commodity markets. DAP and potash also rose, though not as much. Natural gas was the lone input to decline. It is important to note that natural gas is only factored into MCO policies with an irrigated practice.
A QUICK MCO REFRESHER
Margin Coverage Option (MCO) is an area-based plan designed to protect crop margin, not just yield or crop price alone.
MCO covers the band from 86% up to either 90% or 95% of county revenue, depending on the coverage level selected. It is 80% subsidized by the federal government and stacks on top of your underlying Revenue Protection (RP) policy as an endorsement. Coverage is area-based, meaning it uses county-level yields and prices rather than individual farm performance.
The margin calculation has two sides. On the cost side, projected input prices were set in the fall and harvest input prices were just finalized in April. On the revenue side, the projected commodity price for corn was set at $4.56 and $10.73 for soybeans during the fall discovery window. The harvest commodity price won’t be determined until October.
WHAT RISING INPUT COSTS COULD MEAN
To show the impact of the input cost movement, our team modeled what would happen to an MCO corn indemnity if input costs were the only thing that changed.
Important: These are illustrative examples only. In reality, commodity prices and county yields will also change between the projected and harvest periods. Those factors will significantly affect whether an indemnity is triggered and how large it is. These examples exist solely to demonstrate how much the input cost swing alone could contribute to an MCO loss payment. They are not projections or predictions of actual indemnity amounts.
In these examples:
- 95% coverage levels at 100% protection factor
- Corn price was held constant at $4.56/bu
- County yield was held constant
- The only variable changed was the movement from projected input costs to final input costs
- The model was for non-irrigated corn, so natural gas was not included
Why are the indemnity amounts different across these three counties if the input cost increase is the same? It comes down to the amount of protection. MCO bases its protection on the expected crop value for your county and counties with higher expected yields have a higher expected crop value. A higher crop value means a larger insured amount, which means there’s more dollars at stake when costs rise.
Even though input costs moved by roughly the same percentage in all three examples, the higher-yield county produces a larger indemnity simply because the policy is protecting a bigger pie.
ILLUSTRATIVE EXAMPLES
Bottom line: these input price swings are large, but only one piece of the puzzle. In isolation, they are enough to cause an indemnity for these modeled corn counties. Rising commodity prices or strong yields could still reduce or eliminate an indemnity. All three factors work together to determine the final result.
WHAT’S STILL TO COME
One of the largest pieces of the MCO calculation is now finalized, but the final outcome is not. The next major factor to watch is the commodity harvest price discovery period. Corn and soybean harvest prices will be finalized in October. Final county yields will also be needed before MCO indemnities can be finalized.
QUESTIONS? LET’S TALK.
If you didn’t purchase MCO for 2026 but are interested in learning more for the future, PRM can run a personalized analysis comparing MCO against other upper-tier protection products — including Margin Protection (MP), Enhanced Coverage Option (ECO), and Supplemental Coverage Option (SCO). They can help you identify the best fit for your operation and county.
Contact us at (605) 271-7996 or at precisionriskmanagement.com to get started.
