Understanding How the Margin Coverage Endorsement (MCO) Protects Your Farm — Detailed Example with Input Cost Calculation

Eric Wiles
Jul 31
2 min read

The MCO Endorsement is an optional add-on to your crop insurance that offers regional protection against drops in your operating margin—which is your expected revenue minus your expected costs—caused by broad factors like yield reductions, price declines, or rising input costs.

In return for your premium, it attaches to your existing crop insurance policy (such as Yield Protection, Revenue Protection, or Actual Production History). All provisions follow your policy, with the MCO provisions taking precedence if there's a conflict.

How Input Costs Are Determined

Input costs are based on typical resource use in your area, multiplied by current market prices.

These include fuel (diesel), fertilizer components (urea, DAP, potash), etc.
Prices are sourced from current market data, ensuring they accurately reflect regional costs.

Example calculations:

Diesel: 20.5 gallons × $3.15 = $64.58
Urea: 325 lbs × ($740/2000 lbs) = $120.25
DAP: 137 lbs × ($810/2000 lbs) = $55.49
Potash: 75 lbs × ($925/2000 lbs) = $34.69
Total input costs per acre: $275.01

(Note: Dividing the annual price per ton by 2000 gives the price per pound.)

Scenario Details for a Corn Farm in a County (Share = 100%)

Expected Data:

Expected Yield: 180 bushels/acre
Expected Price: $6.00/bu
Final Yield: 165 bu/acre
Final Price: $5.50/bu

Expected Revenue:180 bu × $6.00 = $1,080

Expected Input Cost:$275.01

Step 1: Calculate Expected Margin

Expected Margin:
$1,080 – $275.58 = $804.99

Step 2: Calculate Actual Final Revenue & Margin

Final Revenue:
165 bu × $5.50 = $907.50
Final Margin:
$907.50 – $275.58 = $632.49

Step 3: Determine the Trigger Margin

Assuming a 95% trigger level:

Trigger Margin:$804.42 × 0.95 = $764.74
Margin Loss (Final Margin – Trigger Margin):$764.20 – $631.92 = $132.25

Because the final margin is below the trigger margin, an indemnity could be payable.

Step 4: Calculate the Coverage Range & Loss

Coverage Range:For a 95% trigger, the coverage range is 0.09 (9%) of expected revenue.
Coverage Value (per acre):$1,080 × 0.09 = $97.20
Area Margin Loss:$764.20 – $631.92 = $132.25
Payment Factor:Loss ÷ coverage value =$132.28 ÷ $97.20 = 1.36, but since the maximum payment factor is 1.00, the payout is capped at full coverage.
Potential Indemnity:The maximum coverage amount—e.g., $48,870—would apply based on your crop value, coverage, and share.

Summary:

This detailed example demonstrates how input costs are calculated based on market prices and typical resource use in your area, and how regional yield and price declines might trigger a payout. The coverage range of 0.09 (for a 95% trigger) represents the part of the crop’s value protected against broad regional losses. When the county’s operating margin falls below your trigger level, the MCO can help offset losses, safeguarding your financial stability.

Want to see how the MCO can help protect your farm in 2026?Contact us today to learn more!