The Limits of Traditional MPCI Coverage

Farming has always been a business of variables—weather, commodity prices, and global supply chains all play a role in determining whether a season ends in profit or loss. To manage these uncertainties, many producers rely on federally backed Multi-Peril Crop Insurance (MPCI).

MPCI, administered by the USDA’s Risk Management Agency, is a cornerstone of agricultural risk management. It provides coverage for over 100 crop types and insures a farm’s historical average production at a projected market price. Policies are subsidized up to certain levels, making them a vital safety net for producers across the country.

Still, even with MPCI, coverage isn’t always enough to protect a farm’s full financial exposure.

Real-World Experience: When MPCI Falls Short

Consider one farmer’s experience. In 2022, their operation insured 75% of anticipated production per acre at a favorable USDA coverage price. When an unforeseen total loss occurred that year, even this relatively high level of protection wasn’t enough. The indemnity payment—75% of predicted production multiplied by the coverage price—still left revenues well below total production costs, even before accounting for principal and interest on financing.

Now imagine the same loss in 2024. The USDA’s projected coverage price for that crop year was just 62% of the actual market price paid by handlers. If that loss had occurred, the operation would have been in an even worse position despite carrying the same coverage level.

The lesson? Even with MPCI in place, a farm can face financial shortfalls due to the combined effects of limited subsidized coverage and fluctuating commodity coverage prices. Something is better than nothing—but try telling that to the bank.

Why Higher Coverage Is Often Out of Reach

Obtaining crop insurance above the federally subsidized level can be prohibitively expensive. Premiums for additional coverage tiers are high, and payments leave the farm to outside insurers, reducing retained earnings and cash flow.

For many producers, this creates a dilemma: accept coverage gaps or absorb significant costs for incremental coverage.

Captive Insurance: Making MPCI More Powerful

A growing number of farming companies are discovering that captive insurance can transform how they manage agricultural risk. By forming their own licensed insurance company, producers can design supplemental policies that enhance MPCI coverage while retaining premium dollars and underwriting profits within their own enterprise.

For example, one farming company designed two policies inside its captive for it’s almond production:

1. Production Extension Coverage: Increasing protection from 75% to 85% of USDA-predicted production.

2. Commodity Price Enhancement: Adding extra price protection above the USDA’s projected market price for any covered losses—whether under MPCI or the new 75%–85% captive layer.

The result was a system that covered operating, financing, and interest costs—ensuring business continuity even in an adverse year. And because the additional premiums were paid to the farm’s own captive, the company retained underwriting profits in a year with no loss, creating a win-win scenario.

The Bottom Line

While MPCI remains an essential part of agricultural risk management, it’s not a complete solution. Rising costs, shifting prices, and limited subsidized tiers mean that coverage gaps are unavoidable in many cases.

By integrating a captive insurance company into their risk strategy, farming operations can:

·  Supplement and strengthen MPCI coverage.

·  Align coverage with their actual cost structure and risk tolerance.

·  Retain premium dollars and build reserves for the future.

Captive insurance transforms MPCI from a baseline safety net into a comprehensive, customized risk management tool—one that keeps more control, profit, and resilience on the farm.

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