Rising Fertilizer Costs Put Margin Coverage Option (MCO) in the Spotlight

Could Higher Fertilizer Prices Lead to MCO Payments in 2026?

Casey Krueger, Business Development Director

As producers finalize their 2026 risk management plans, one of the biggest developments isn't happening in the grain markets—it's happening in the input markets. Fertilizer prices have moved sharply higher this year, with phosphate, urea and ammonia prices all increasing due to global supply disruptions, strong demand, and ongoing geopolitical uncertainty. Industry analysts now expect fertilizer costs to remain elevated throughout the 2026 crop year, putting additional pressure on farm profitability. This environment may create one of the first real opportunities for the new Margin Coverage Option (MCO) to generate payments.

Why Fertilizer Prices Matter to MCO

Unlike traditional crop insurance products that primarily focus on yield and revenue, MCO protects a producer's operating margin, which is calculated as Revenue minus Input Costs. For corn, the MCO margin calculation includes several major inputs: urea, DAP, potash, diesel fuel and natural gas. If fertilizer prices rise and squeeze operating margins, MCO can trigger an indemnity even if yields remain near average.

The 2026 Setup Looks Favorable

One of the most encouraging signals for MCO policyholders is that harvest input prices established this spring came in significantly above the projected input prices used when coverage was established. According to University of Illinois farmdoc analysis, the increase in 2026 input prices has already created a meaningful cost shock within the MCO margin calculation. Their analysis notes that higher input prices are increasing the likelihood of MCO payments, assuming crop prices and yields do not completely offset those higher costs later in the season.

Bottom Line for 2026

The story of 2026 may not be yield risk—it may be margin risk. With fertilizer costs high, commodity prices struggling to keep pace and operating margins tightening across the Corn Belt, MCO appears better positioned today than it did when sign-up began. While final county yields and harvest prices will ultimately determine whether payments occur, elevated fertilizer prices have already increased the probability of MCO indemnities for many counties.

2027 Crop Insurance Outlook: MCO vs. MP vs. ECO vs. SCO

With fertilizer prices remaining elevated and margins under pressure, 2027 could be one of the most important years in recent memory to evaluate supplemental crop insurance coverage. The introduction of Margin Coverage Option (MCO) gives producers another tool alongside Margin Protection (MP), Enhanced Coverage Option (ECO) and Supplemental Coverage Option (SCO). The best choice depends on whether the producer is more concerned about revenue risk or margin risk.

Understanding the Four Options

1. Margin Coverage Option (MCO)

• Protects operating margin (Revenue – Input Costs)

• Covers losses caused by:  Lower commodity prices, Lower county yields. Higher input costs

• Coverage band: 90% - 95%

• Requires an underlying RP, YP, RP-HPE or APH policy

• Cannot be paired with ECO but CAN be paired with SCO

• Includes fertilizer inputs such as urea, DAP, potash, diesel, and natural gas in the margin calculation

2. Margin Protection (MP)

• Protects the producer's entire expected operating margin

• Covers price, yield and input cost risk

• Coverage levels from 70% to 95%

• Can be paired with RP/YP and provides a premium credit

• Has a longer track record than MCO

3. Enhanced Coverage Option (ECO)

• Area-based county yield or revenue protection

• Covers from 90% - 95%

• Triggered by county losses

• Does not account for input costs

• Available with any commodity program election

4. Supplemental Coverage Option (SCO)

• Area-based county yield or revenue protection

• Covers 90% down to the producer's coverage level

• Can be paired with MCO

Bottom Line

If fertilizer prices remain elevated into the 2027 planting season, MCO may be the most attractive new risk-management tool for average Midwest growers because it directly recognizes the impact of rising input costs on profitability. However, for producers seeking the strongest overall margin protection, Margin Protection (MP) remains the gold standard due to its broader coverage and longer track record. The key question for 2027 isn't "Will yields fall?" It's "What happens if margins keep shrinking?" That's why margin-based products are receiving so much attention heading into the next crop year.

Sources: 1. University of Illinois Farmdoc Daily, Margin Coverage Option (MCO) 2026 Input Harvest Prices (May 6, 2026) https://farmdocdaily.illinois.edu/2026/05/margin-coverage-option-mco2026-input-harvest-prices.html 2. USDA Risk Management Agency, Margin Coverage Option Fact Sheet https://www.rma.usda.gov/sites/default/files/2025-05/MarginCoverage-Option-Fact-Sheet_0.pdf

Compliance Note: Higher fertilizer prices increase the likelihood of MCO and MP payments by reducing expected operating margins. However, actual indemnities will depend on final county yields, harvest commodity prices, and completed margin calculations.