Malt Barley Endorsement (MBE)

“No Barley No Beer” if you have seen this bumper sticker then you understand what Malt Barley is. What you might not understand is how Federal Crop helps you out when you grow a malting variety.

There are 3 ways to insure your Malting Barley:

Yield Protection, Revenue Protection, and/or Revenue Protection with Harvest Price Exclusion aka your base Federal Crop policy.
If you are in Yield Protection and have a contract you can look to utilize the Contract Price Option (no additional quality coverage) – this is NOT available if you are in Revenue Protection.
You can add the Malt Barley Endorsement (MBE) to your Yield Protection, Revenue Protection, Revenue Protection with Harvest Price Exclusion policies.

This article will be discussing the later.

Here’s a quick definition of the Malt Barley Endorsement (MBE) direct from RMA:

“Provides additional quality protection (based on the specifications from your malting barley contract or Special Provisions if insuring under a malting barley price agreement) for malting barley acreage that is insured under the Small Grains Crop Provisions.

MBE incorporates projected and harvest prices based on your malting barley contract(s) versus using projected and harvest prices from the Commodity Exchange Price Provisions (CEPP).”

How the Malt Barley Endorsement (MBE) works.

The Malt Barley Endorsement (MBE) allows you to take your Malt Barley Contracted Price (assuming no weighted factors, and timeliness of contract), and use it as your Projected Price to help determine your coverage using your “regular” crop insurance policy (subject to the Maximum Contract Price Factor found in AIB).

When harvest comes along if your Malt Barley production is rejected by your buyer (assuming due to insurable causes of loss) you are then able to apply a Quality Adjustment factor that is unique to Crop Policies with the Malt Barley Endorsement (MBE) to your Production to Count which could potentially trigger a loss.

If there are any other Quality Adjustment factors, found in the Special Provisions portion of the policy, you could then use those as well when factoring your loss.

Keep in mind that you need to keep track of your Production, and samples, per your Crop Policy Unit Structure aka you cannot commingle production from multiple units – – this is a big deal.

By utilizing the MBE you could potentially apply the MBE Quality Adjustment Factor to your Production which in turn could trigger a loss at a higher dollar amount per bushel then the standard Projected Price should your Malt Barley get either rejected, or purchased at a reduced price from your end buyer.

Availability of the Malt Barley Endorsement (MBE)

The MBE is available in select counties in 13 states at this time. Please be sure to check your county actuarials for the most up to date list. Below is a list of the states where the Malt Barley Endorsement (MBE) is currently available.

The approved malting barley varieties can be found on the American Malting Barley Association website for the current crop year, or any variety grown under the terms of a malting barley contract.

The endorsement is allowed to be added onto Yield Protection, Revenue Protection, and Revenue Protection with Harvest Price Exclusion underlying policies in a buy up coverage level (50% – 85%).

CAT coverage is not allowed unless you are talking about High Risk Acres. You would still need buy up coverage on the non high risk acres.

When you can purchase the Malt Barley Endorsement (MBE).

The Malt Barley Endorsement (MBE) must be added to your Barley policy prior to the applicable Sales Closing deadline. Once you have elected to add the Malt Barley Endorsement (MBE) to your Barley policy you then must provide your Malt Contract by the applicable Acreage Reporting Deadline.

What the requirements of your Contract look like for the Malt Barley Endorsement (MBE).

The eligible types of contracts are as follows:

Malting Barley Contract
- Must be in writing between you (insured) and a buyer that is a brewery or any other buyer that produces or sells malt or malt products aka Malt Plant.
  - If you are not sure, check with your crop insurance agent!
- The contract must specify the amount of contracted production, the purchase price or method to determine the price, and establish the obligations of each party to the agreement.
- You can have multiple contracts, and the use a price average / weighted average factor depending on when the contracts are submitted to the carrier.
Malting Barley Price Agreement
- A written document that meets the requirements for a malting barley contract. It is executed with a buyer not explicitly defined in such contracts but is a usual purchaser of malting barley.
Malting Barley Seed Contract
- A written document between the insured party and a buyer. In this contract, the insured commits to producing malting barley seed, meeting all the necessary conditions typically associated with a malting barley contract.

If you are unsure if your contract will qualify make sure you contact your crop insurance agent as the rules are ever-changing.

How the acres work under the Malt Barley Endorsement (MBE).

The maximum acreage that will be considered to be “contracted acres” will be the lowest of:

the number of bushels specified in the contract divided by the Approved Yield
the number of acres in the contract
the number of insurable acres planted to a malting barley variety

There are multiple steps you can take when you begin to look at Contracted and Non-Contracted acres in order to come up with a weighted average projected price. This is something that is one layer deeper than this article is intended to go. Please visit with your crop insurance agent should you run into this scenario.

A rule of thumb is that you want your Malting Barley Contract to be for at least your Approved Yield (100% of Approved Yield) x’s your acres. This will then maximize your coverage, and prevent you from having to use a weighted factor.

How the price works under the Malt Barley Endorsement (MBE).

Projected Price

If the Malting Barley Contract provides a fixed price for the contracted production, the Projected Price for that Malting Barley Endorsement is the Contract Price (assuming the contract meets all other requirements). Let’s assume in this example that the Contract is for $6.50 per bushel.

The maximum Projected Price you are able to use is found by looking in the Actuarial Information Browser for your County. In most Counties in Montana the factor is 2.50.

Take the Projected Price times 2.50 to come up with the maximum allowable price.
- Example: Projected Price is $4.48.
  - Maximum Price would then be $11.20 ($4.48 x 2.50)

You are able to use the lesser of the price in your Malting Barley Contract, or the Projected Price x Factor. Since $6.50 is less then $11.20 you would use $6.50 as your Projected Price.

Keep in mind that timing plays a large factor. The above assumes you had your contract / price established prior to the Acreage Reporting Deadline (ARD). If the price is established after ARD then there is another method utilized, again – that is a deeper level then this article is intended to go.

Harvest Price

If you are in Yield Protection the Harvest Price = Projected Price. If you are in Revenue Protection then use the following to determine your Malt Barley Endorsement Harvest Price (MBE HP):

(Malting Barley Projected Price – Soft Red Winter Wheat Projected Price) + Harvest Price for Soft Red Winter Wheat

See graphic below for our “formula” to find the MBE HP. The graphic includes an example of when the Harvest Price increases and when the Harvest Price decreases.

Here is the link to track the Projected and Harvest Prices for Malting Barley Endorsement (Soft Red Winter Wheat) as this is different then your Malt Barley Type Projected Price & Harvest Price on your base Crop Policy – website.

Causes of Loss under the Malt Barley Endorsement (MBE)

Causes of loss contained in the Small Grains Crop Policy.
Losses are covered if the buyer rejects any production due to failure in meeting malting barley contract standards. This is considered an insured cause of loss, provided it results from an insurable cause outlined in the Small Grain Crop Provision and meets specified conditions in the MBE.
Losses are covered if the buyer rejects production under a malting barley price agreement, provided it’s due to an insurable cause specified in the Small Grains Crop Provisions. Notably, if rejected, the quality standards referred to are outlined in the Special Provisions rather than those in the malting barley price agreement.
Rejection of production is NOT an insured cause of loss for a malting barley seed contract.

Notes on Production under the Malt Barley Endorsement (MBE)

Production from all acreage insured under the Malt Barley Endorsement (MBE) and any production from other types of barley must NOT be commingled.
Production that is accepted by the buyer as Malt is NOT subject to any other Quality Adjustments under the Malt Barley Endorsement (MBE)
- On occasion a buyer will accept production that fails to meet the standards of the malt contract at the same or a reduced price due to low supplies.
  - If the production is accepted at a lower price then there is a factor used to apply it towards a potential loss.
All samples of production used to determine insurable losses under the Malt Barley Endorsement (MBE) must be obtained by no later the 90 days after the End of Insurance Period (EOIP) aka harvest.

Disposition of Production under the Malt Barley Endorsement (MBE)

Once a loss is determined the AIP will not pay the claim until all of the rejected Production is disposed of prior to Sales Closing Date for the next crop year.
- If production is sold you must produce the settlement sheets showing all of the production was sold.
- If the production was fed you must produce the feeding records showing all of the production was fed.
- Or any combination which shows all of the rejected production was disposed of.
If the insured does not comply with the deadline they may be required to repay any indemnity, if one was already paid, or the loss may be denied.

Loss Examples

The above information is by no means all inclusive as there are many different paths the Malt Barley Endorsement (MBE) can take based on a variety of factors. However, this information should be enough to start asking better questions.

Below are some examples of loss scenarios that should help shed some more light on how this program works.

Assumptions

Farmer seeded a Malting variety of Barley, and is contracted with a malt plant that qualifies as malt buyer under the requirements of the policy.

Contract Price: $6.50 per bushel

Contracted Bushels: 60,000

MPCI Projected Price: $4.50 per bushel

Coverage Level: 70%

Acres seeded: 1,000

Approved Yield: 60.0

Share: 100%

Guaranty & Premium

We will explore both Yield Protection and Revenue Protection so that you can see the difference in both cost, and how a loss scenario would play out.

Yield Protection

MPCI & MBE Guaranty:

Approved Yield x Coverage Level x Acres
- 60.0 x 70% x 1,000 = 42,000 bu (42.0 bu/acre).

You do not convert into revenue until a loss. You either harvest less then 42,000 bushels (42.0 bu/acre), and have a loss, or you don’t. For the purposes of showing the MBE potential coverage we will convert to revenue for this example:

MPCI Guaranty: 42.0 x Projected Price ($4.50) = $189.00

MBE Guaranty: 42.0 x MBE Projected Price ($6.50) = $273.00

Depending on which Unit Structure you have the premium will vary. In this example here is how the premiums breakdown:

Optional Units:

MPCI Premium*: $8.94 /acre
MBE Premium*: $17.11 /acre

Enterprise Unit:

MPCI Premium*: $2.54 /acre
MBE Premium*: $5.71 /acre

*Please bear in mind that the premium calculations involve numerous factors, and the figures provided here are merely illustrative examples. They should not be relied upon as accurate representations of your specific numbers.

Revenue Protection

MPCI Guaranty:

Approved Yield x Coverage Level x Projected Price x Acres
- 60.0 x 70% x $4.50 x 1,000 = $189,000 ($189.00 /acre)

MBE Guaranty:

Approved Yield x Coverage Level x MBE Projected Price x Acres
- 60.0 x 70% x $6.50 x 1,000 = $273,000 ($273.00 /acre)

The Guaranty will always remain the “greater of” in using the Projected Price or the Harvest Price at the end of the insurance period.

Depending on which Unit Structure you have the premium will vary. In this example here is how the premiums breakdown:

Optional Units:

MPCI Premium*: $10.80 /acre
MBE Premium*: $19.79 /acre

Enterprise Unit:

MPCI Premium*: $3.33 /acre
MBE Premium*: $6.85 /acre

Initial Takeaway

In the above example you will notice that Revenue Protection is a little more expensive then Yield Protection, but you are getting coverage for a potential change in price at the end of the insurance period. This will become more apparent in the loss scenarios.

You will also notice that the premium in going from your “base” MPCI coverage to the MBE coverage is almost double. Depending on your Contract Price both the Coverage and the Premium will change accordingly (keep in mind the maximum Contract Price Factor found in the AIB).

Local Market Price (LMP)

This is a new concept you are being introduced to, and will come into play when figuring out your MBE Quality Adjustment. Here is the definition from the MBE Handbook:

“Loss adjusters must verify the LMP used for MBE. The following steps are required to verify LMP in addition to LAM Par. 1102(E)(11)(b) that states: “The LMP is defined in the applicable CP. In extenuating circumstances, the LMP may be difficult to determine or appears to be unreasonable because of unusual market conditions in the region; e.g., wide-spread high levels of Aflatoxin. Under these circumstances, the daily Posted County Price for the applicable commodity issued by FSA may be used as a tool to assist in establishing the LMP along with LMPs from areas outside the local market area.”

Loss Scenario 1: Harvest Price Goes Down – all bushels accepted as Malt.

Assumptions:

Harvested Bushels: 42,000 (42.0 bu/acre)
MPCI Harvest Price: $4.00
Soft Red Winter Wheat Projected Price: $7.00
Soft Red Winter Wheat Harvest Price: $6.00
Malt Rejected: 0 – all taken as Malt.
Local Market Price (LMP): $3.50

Yield Protection:

MPCI Loss: $0 – did not harvest less then bushel guaranty.

MBE Loss: $0 – did not harvest less then bushel guaranty.

Revenue Protection:

MPCI Loss:

Production Revenue = Bushels Produced x Harvest Price
- 42,000 x $4.00 = $168,000
Loss = (Guaranty – Production Revenue) x Share
- ($189,000 – $168,000) x 100% = $21,000

MBE Loss:

MBE Harvest Price = (MBE Projected Price – SRWW Projected Price) + SFWW Harvest Price
- ($6.50 – $7.00) + $6.00 = $5.50
Production Revenue = Bushels Produced x MBE Harvest Price
- 42,000 x $5.50 = $231,000
Loss = (Guaranty – Production Revenue) x Share
- ($273,000 – $231,000) x 100% = $42,000

As you can see by being in Revenue Protection vs. Yield Protection regardless of taking the MBE when the Harvest Price goes down you can potentially collect a loss even if you harvest right at your bushel guaranty.

The difference in loss for Revenue Protection was $21,000 when comparing the “basic” MPCI policy vs the MBE option. In other words the farmer above collected an additional $21,000 in loss, and depending on what Unit Structure they had the either paid an additional $8.99/acre OU or $3.52/acre EU in premium.

Once more, it’s important to note that numerous assumptions are at play behind the scenes. The information presented is intended solely for illustrative purposes, serving as a conceptual guide rather than precise representation.

Loss Scenario 2: Harvest Price Goes Down – all bushels REJECTED by end buyer.

Assumptions:

Harvested Bushels: 42,000 (42.0 bu/acre)
MPCI Harvest Price: $4.00
Soft Red Winter Wheat Projected Price: $7.00
Soft Red Winter Wheat Harvest Price: $6.00
Malt Rejected: 42,000 – all barley rejected aka did not make Malt.
Local Market Price (LMP): $3.50

Yield Protection:

MPCI Loss: $0 – did not harvest less then bushel guaranty, and there is not a Quality Adjustment for the Barley being rejected aka not making malt.

MBE Loss:

MBE Quality Adjustment (QA) Factor = Local Market Price (LMP) / MBE HP
- $3.50 / $5.50 = 63.6%
Production to Count = Accepted Production + (Rejected Production x MBE QA)
- 0 + (42,000 x 63.6%) = 26,712
Loss = ((Bushel Guaranty – Production to Count) x MBE Projected Price) x Share
- ((42,000 – 26,712) x $6.50) x 100% = $99,372

Revenue Protection:

MPCI Loss:

Production Revenue = Bushels Produced x Harvest Price
- 42,000 x $4.00 = $168,000
Loss = (Guaranty – Production Revenue) x Share
- ($189,000 – $168,000) x 100% = $21,000
There is not a Quality Adjustment for the Barley being rejected aka not making malt.

MBE Loss:

MBE Quality Adjustment (QA) Factor = Local Market Price (LMP) / MBE HP
- $3.50 / $5.50 = 63.6%
Production Revenue = (Accepted Production x MBE HP) + (Rejected Production x MBE QA x MBE HP)
- (0 x $5.50) + (42,000 x 63.6% x $5.50) = $146,916
Loss = (Revenue Guaranty – Production Revenue) x Share
- ($273,000 – $146,916) x 100% = $126,084

Loss Scenario 3: Harvest Price Goes Down – some bushels REJECTED by end buyer.

Assumptions:

Harvested Bushels: 42,000 (42.0 bu/acre)
MPCI Harvest Price: $4.00
Soft Red Winter Wheat Projected Price: $7.00
Soft Red Winter Wheat Harvest Price: $6.00
Malt Rejected: 21,000 – half did not make Malt.
Local Market Price (LMP): $3.50

Yield Protection:

MPCI Loss: $0 – did not harvest less then bushel guaranty, and there is not a Quality Adjustment for the Barley being rejected aka not making malt.

MBE Loss:

MBE Quality Adjustment (QA) Factor = Local Market Price (LMP) / MBE HP
- $3.50 / $5.50 = 63.6%
Production to Count = Accepted Production + (Rejected Production x MBE QA)
- 21,000 + (21,000 x 63.6%) = 34,356
Loss = ((Bushel Guaranty – Production to Count) x MBE Projected Price) x Share
- ((42,000 – 34,356) x $6.50) x 100% = $49,686

Revenue Protection:

MPCI Loss:

Production Revenue = Bushels Produced x Harvest Price
- 42,000 x $4.00 = $168,000
Loss = (Guaranty – Production Revenue) x Share
- ($189,000 – $168,000) x 100% = $21,000
There is not a Quality Adjustment for the Barley being rejected aka not making malt.

MBE Loss:

MBE Quality Adjustment (QA) Factor = Local Market Price (LMP) / MBE HP
- $3.50 / $5.50 = 63.6%
Production Revenue = (Accepted Production x MBE HP) + (Rejected Production x MBE QA x MBE HP)
- (21,000 x $5.50) + (21,000 x 63.6% x $5.50) = $188,958
Loss = (Revenue Guaranty – Production Revenue) x Share
- ($273,000 – $188,958) x 100% = $84,042

As you can see Revenue Protection pays out more of a loss again as it is taking into account the Harvest Price change. However, you will also notice that if the farmer took the MBE Option, and had some of their Barley rejected the MBE QA would then trigger a loss. Even though you take 100% of the accepted Barley and then add the Rejected Barley x MBE QA; in the above scenario it was enough to trigger a loss.

Disclaimer

There are a lot of rules behind this program, so the above information is very high level. You will want to take a deeper dive into understanding the program before making a purchasing decision. Keep in mind the above information is for informational purposes only, and does not replace anything found in the Crop Insurance Handbook, Loss Adjustment Manual, RMA’s website, etc. Always consult the Crop Insurance Handbook, Loss Adjustment Manual, RMA’s website, etc. before making a purchasing decision. Any discrepancy between the above information and the policy is not intended. The information provided in this article does not supersede policy and procedure. Any changes to the policy and procedures may make this material obsolete.

Malt Barley Endorsement (MBE)