Author: Ryan Loy

  • Breakeven Curves Under Different Midsouth Rental Agreements

    Breakeven Curves Under Different Midsouth Rental Agreements

    Farmers in the Midsouth region are faced with several choices when planting and marketing their crops. The type of rental agreement can have a variety of impacts on a Midsouth farmer, particularly in terms of returns to cash operating expenses (or variable costs). For example, a farmer operating under a crop share agreement may require higher yields to cover variable costs than one operating under a cash rent agreement. This article highlights the breakeven potential for rice, corn, and soybeans under three land ownership scenarios: cash rent, 75-25 crop share agreement, and fully owned land. Understanding breakeven curves allows farmers to evaluate the minimum yield (or price) needed to cover costs under each agreement, an essential step in managing economic risk and optimal crop choice. The analysis aims to help Midsouth farmers understand their cost structure and to support more informed marketing decisions within the context of alternative rental agreements. 

    The assumptions used to calculate breakeven values are given in Table 1 below. The listed Midsouth expenses represent estimated production expenses per acre for each crop; operating expenses do not include fixed overhead and other non-cash expenses such as depreciation. Breakeven combinations that exceed operating expenses do not include non-cash costs such as depreciation. Crop share agreements are assumed to follow a 75-25 split, with the landowner receiving 25% of the revenue and not contributing to production expenses. The cash rent value is an average derived from county-level estimates for irrigated farmland across the Midsouth region. We assume no associated land costs for the owned land scenario.  

    Table 1. Breakeven Curve Assumptions

    CropEstimated Cash Operating ExpensesCrop Share Cash Rent2025 USDA-RMA Harvest Price
    Corn$80675-25$152$4.65
    Soybean$51075-25$152$10.51
    Rice$99375-25$152$6.35

    Figures 1 – 3 show the breakeven curves for Midsouth corn, soybean, and rice production. These curves plot the price and yield combinations necessary to cover total cash operating expenses, as defined in Table 1. Any price and yield point below the curve indicates a crop revenue that does not cover cash operating expenses, while points above the curve indicate positive returns above cash operating expenses.  To provide context for current market expectations, the 2025 USDA-RMA expected harvest price for Arkansas is plotted on each graph. Across all three crops, the owned land scenario consistently requires the lowest price/yield combination to break even, while crop share requires the highest combination. For instance, Figure 1 shows the breakeven curves for Midsouth corn production. At the expected harvest price of $4.65, the target breakeven yield under full ownership, cash rent, and crop share is 173 bu/acre, 206 bu/acre, and 231 bu/acre, respectively.  In simple terms, land tenure arrangements with higher expense obligations require either higher yields, higher market prices, or a combination of both to cover variable costs (Mills, 2023). The implication is that cash rent and land ownership are progressively more profitable than crop share.  However, it is important to remember that there are things to consider beyond cash operating expenses.  Specifically, both cash rent and owned land require the producer to bear a higher level of production risk, and land ownership requires the cost of capital investment.  

    Figure 1. Midsouth Corn Breakeven Curves at an estimated $806/acre cash operating expense.

    Figure 2. Midsouth Soybean Breakeven Curves at an estimated $510/acre cash operating expense.

    Figure 3. Midsouth Rice Breakeven Curves at an estimated $993/acre cash operating expense.

    References

    Mills, Brian. “Forage Cost of Production and Breakeven Curves.” Southern Ag Today. July 19, 2023. https://southernagtoday.org/2023/07/19/forage-costs-of-production-and-breakeven-curves/

    United States Department of Agriculture. (2024). Cash Rents County Estimates. Retrieved April 3, 2025, from https://www.nass.usda.gov/Surveys/Guide_to_NASS_Surveys/Cash_Rents_by_County/

    United States Department of Agriculture – Risk Management Agency. (2025). Harvest Price Discovery. Retrieved April 7, 2025, from https://public-rma.fpac.usda.gov/apps/PriceDiscovery


    Loy, Ryan. “Breakeven Curves Under Different Midsouth Rental Agreements.Southern Ag Today 5(17.1). April 21, 2025. Permalink

  • Midsouth Rice Production and Trade Update for 2024/25 

    Midsouth Rice Production and Trade Update for 2024/25 

    Midsouth Production Expenses and Profitability

    The global rice market is poised for significant shifts in the 2024/25 marketing year, driven mostly by relative profitability, policy changes, and evolving global trade dynamics. Domestic rice production expectations, specifically in Arkansas, look to increase slightly, marking three consecutive years of increased rice acres and production. Shifting off the traditional crop rotation may signal rice’s operating margins are a more attractive investment to farmers (and their lenders) again in 2025. Based on enterprise budgets published by the University of Arkansas, operating expenses for rice look to improve year-over-year (Table 1). Nitrogen inputs show the only increase in per-acre expenditures, with a 4% increase from 2024, while seed and diesel expenses have significantly declined. It’s worth noting that a possible 2025 seed shortage could hinder the expansion of rice acres; if this comes to fruition, seed expenses will likely increase relative to 2024, severely impacting profitability (Haigwood, 2025).  

    Table 1. 2023 – 25 Selected Rice Operating Expenses

    202320242025% Change         
    (2024 – 2025)
    Seed ($/ac)$43.92$71.28$45.36-36.36%***
    Nitrogen (N) ($/lb)$0.40$0.25$0.264.00%
    Phosphate (P) ($/lb)$0.45$0.35$0.350.00%
    Potash (K) ($/lb)$0.41$0.25$0.250.00%
    Herbicide ($/ac)$138.78$135.89$131.62-3.14%
    Insecticide ($/ac)$3.01$9.04$9.040.00%
    Fungicide ($/ac)$24.10$11.32$11.320.00%
    Diesel ($/gal)$4.50$3.65$2.80-23.29%

    Per-acre operating costs in Arkansas amount to roughly ~$992/acre, based on 2025 operating expense forecasts. Table 1 highlights the profitability of mid-south rice production using Arkansas County, Arkansas. Using the 2023 Arkansas state average yield and price of 186 bu/acre and $6.13/bu, a mid-south rice farmer under an 80/20 crop share agreement can expect to breakeven at 203 bu/acre (assuming $6.13/bu) or at $6.67/bu (assuming 186 bu/acre). Table 1 below highlights per-acre profit above operating expenses (~$992/acre) under a range of prices and yields.  

    Figure 1. Rice Net Operating Returns, Arkansas County, Arkansas, 2025, 80-20 Crop Share

    Quick Trade Update

    The Mexico rice market will be worth watching as we move into the 2024/25 marketing year. The USDA-FAS forecasts Mexico to import nearly 860,000 metric tons of paddy/rough rice (a 1% increase YoY). The U.S. is poised to remain the primary source of these imports due to its proximity and relationship with Mexico. However, Brazil (and other countries such as Argentina and Thailand) are expected to increase their market share of Mexican paddy rice imports from lower prices and tariff exemptions through the extended Presidential Anti-inflation decree, which exempts tariffs on countries without a free trade agreement (FTA) for rough rice through 2025 (USDA-FAS, 2025). However, long-grain milled rice is not included in the tariff exemption, and as such, the import tariff returns to 20% for countries besides the United States, which is exempt due to the USMCA trade agreement. This helps the U.S. maintain competitiveness and retain market share for milled rice exports to Mexico (USDA-ERS, 2025).  Still, domestic U.S. rice supply has outpaced total use (including exports), with a 10.7% increase in ending stocks, according to the January 2025 WASDE Report. Current ending stocks, coupled with the expectation for increased rice acres and global trade uncertainty, could continue to put downward pressure on rice prices and hinder U.S. export competitiveness into this marketing year.  

    References

    University of Arkansas, Division of Agriculture. (2025). Crop Enterprise Budgets for Arkansas. Retrieved January 2025, from, https://www.uaex.uada.edu/farm-ranch/economics-marketing/farm-planning/budgets/crop-budgets.aspx

    United States Department of Agriculture, Economic Research Service. (2025). Rice Outlook: January 2025. Retrieved January 2025, from, https://downloads.usda.library.cornell.edu/usda-esmis/files/dn39x152w/3f464060c/t722k493j/RCS-25A.pdf

    United States Department of Agriculture, Foreign Agricultural Service. (2025). Grain and Feed Update: Mexico, January 2025. Retrieved February 2025, from, https://apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName?fileName=Grain%20and%20Feed%20Update_Mexico%20City_Mexico_MX2025-0003.pdf

    United States Department of Agriculture. (2025). World Agricultural Supply and Demand Estimates, January 10, 2025. Retrieved January 2025, from, https://www.usda.gov/oce/commodity/wasde/wasde0125.pdf

    Haigwood, W.S. (2025). Rice Seed Availability Tightens Even More for 2025. Retrieved February 3, 2025, from, https://www.farmprogress.com/rice/rice-seed-availability-tightens-for-2025


    Loy, Ryan. “Midsouth Rice Production and Trade Update for 2024/25.Southern Ag Today 5(7.3). February 12, 2025. Permalink

  • Benefits of Debt Consolidation to Improve Short-Term Liquidity

    Benefits of Debt Consolidation to Improve Short-Term Liquidity

    Historically, low commodity prices, high input costs, and expensive financing have been some of the most significant issues farmers have faced in the last few years. Luckily, some financial relief may come in the form of lower interest rates from the Fed reducing COVID-era rate increases (Wright, 2024). The Fed aggressively moved in September to cut 50 basis points, bringing the target Federal Funds rate to 4.75 – 5%, with indications for at least another 50 basis points before the end of 2024 (Fannie Mae, 2024). This article explores a hypothetical situation of a producer leveraging lower interest rates to consolidate debt to improve short-term liquidity. 

    Consider a farmer’s debt obligation for 2024 (Table 1). In this scenario, the farmer holds a land loan with an original principal balance of $450,000 at a fixed interest rate over 20 years. As of 2024, the remaining principal stands at $330,000, with 12 years left in the repayment period. Additionally, the farmer has a machinery loan with an original principal balance of $180,000, structured over a 7-year term. The outstanding balance on this loan is currently $110,000, with 4 years left until maturity. 

    The farmer also faces a $50,000 operating loan, due at the end of this year. Unfortunately, this year has not been profitable, and he cannot cashflow all his debt obligations. 

    Table 1. Current Debt Obligations – Before Consolidation

    The farmer’s total current debt obligation amounts to $123,000 for the year (Table 2). To address this financial strain, the producer meets with their lender to explore options for restructuring their debt. They discuss the possibility of consolidating existing debt into a longer-term, more favorable interest rate structure. The lender agrees to consolidate the remaining principal balances on all three loans ($330,000 + $110,000 + $50,000) into a new 10-year note totaling $490,000 (Table 3). The lender agrees to secure this loan using the equity in the farmer’s financed land as collateral. 

    Table 2. Debt Financing Structure Before Consolidation

    Table 3. Consolidated Debt Structure

    Under this new debt structure, the farmer not only relieves the burden of the current year payments, but also reduces the ongoing obligation from $73,000/year to $63,000/year.  While debt consolidation offers advantages, it’s also important to consider potential drawbacks. For example, under the original debt structure, the annual debt service obligation would have dropped to $40,000/year, after the machinery loan was paid off in 4 years.  Under the consolidated note, the producer is committed to $63,000/year for a full 10 years.  Longer-term debt obligations also potentially lead to paying higher total interest expenses, even with an interest rate lower than their original loan(s) due to the extended accrual period. Additionally, creating a new loan comes with closing costs and fees that could offset the immediate financial benefits. Every situation is unique, and the pros/cons are not always clear.  Those looking to consolidate existing debt should meet with their lenders and determine the best strategy for their farm’s short-term viability and long-term sustainability. 

    References

    Wright, Andrew. “Lower Interest Rates Create Opportunities for Managing Debt on the Farm.” Southern Ag Today 4(37.3). September 11, 2024.

    Fannie Mae. (2024). Fed Cuts Interest Rates Amid Sluggish Existing Sales but a Rebound in Starts Activity. Retrieved November 5, 2024, from https://www.fanniemae.com/research-and-insights/forecast/fed-cuts-interest-rates-amid-sluggish-existing-sales-rebound-starts-activity#:~:text=The%20Federal%20Open%20Market%20Committee,rate%20of%202.75%2D3%20percent.

  • Sifting through the Rice Market: Rising Supplies and Growing Competition

    Sifting through the Rice Market: Rising Supplies and Growing Competition

    With several key moves during the 2024 rice market, and harvest behind us, we can let the dust settle and make some observations and conclusions as we look toward 2025. A major shift in domestic production patterns emerged in 2022; volatile input costs, triggered by the Russian-Ukraine War and supply chain disruptions, led to a decline in rice acreage as southern U.S. farmers opted to grow less input-intensive crops like soybeans and corn. These challenges were exacerbated by a severe drought in California that substantially reduced short/medium grain rice production. Rice production rebounded in 2023 and maintained that level in 2024, when more stable fertilizer prices shifted producers back to rice to counter the risk of lower prices, as was the case in other commodities (Figure 1). Recent conversations with agronomists indicate that U.S. rice farmers may maintain or expand rice acreage and production in 2025.

    Figure 1. U.S. All Rice Class Production and Acres Harvested (2014 – 2024)

    The November 2024 World Agricultural Supply and Demand Estimates (WASDE) report indicates the current outlook for U.S. rice is for larger ending stocks, weaker exports and unchanged supplies and domestic use from October 2024 (USDA-AMS, 2024). All rice exports combined are lowered 1 million cwt to a total of 100 million. All rice ending stocks are increased 1 million cwt to 46.7 million, a 19% increase from the 2023/24 marketing year. The seasonal average farm price for long grain and southern short/medium grain is unchanged at $14.50/cwt, suggesting a cautious domestic response to the stock increases (Figure 2).

    Figure 2. Rice Marketing Year Average Farm Prices (2020/21 – 2024/24F)

    Internationally, it’s important to note the spread between India’s rice, Thailand/Vietnam rice, and U.S. milled rice. U.S. long grain is and has remained for several months at $800/metric ton, while Vietnam and Thailand are currently selling at $550 and $500/metric ton, respectively. The price gap widened following the September 2024 lift of India’s export ban on non-basmati milled rice. Currently, India has set the price floor at $490/metric ton. India’s return to the international market has forced Thailand and Vietnam to lower their prices by 10-13%, impacting demand for U.S. long grain rice in countries like Iraq. Iraq’s preference for cheaper rice from Asia, influenced by the price differential, has reduced demand for U.S. rice exports and poses a challenge for U.S. farmers (Childs and Jarrell, 2024). 

    Looking ahead, global rice exports for 2025 are expected to increase by 4% YoY, bringing total exports to 56.3 million metric tons. India is projected to reclaim much of their share, reaching a volume of 21 million tons. However, countries like Pakistan, Thailand, Vietnam, and the United States are expected to see a decline in export volumes (Figure 3). 

    Figure 3. Milled Rice Exports (2020/21 – 2024/25Nov)

    Source: USDA-FAS, 2024

    References

    United States Department of Agriculture, Agricultural Marketing Service. (2024). World Agricultural Supply and Demand Estimates (WASDE-654). Retrieved November 9, 2024, from, https://www.usda.gov/oce/commodity/wasde/wasde1124.pdf

    United States Department of Agriculture, Foreign Agricultural Service – PSD Reports. (2024). World Rice Trade. Retrieved November 9, 2024, from, https://apps.fas.usda.gov/psdonline/app/index.html#/app/downloads

    United States Department of Agriculture, National Agricultural Statistics Service. (2024). Rice Production and Acres Harvested. Retrieved October 2024, from, https://quickstats.nass.usda.gov/

    Loy, R., and Hunter, B. (2024). The Disparity Between Crop Prices Received and Input Prices Paid.” Southern Ag Today 4(28.3). July 10, 2024. Available at, https://southernagtoday.org/2024/07/10/the-disparity-between-crop-prices-received-and-input-prices-paid/

    Childs, N., & Jarrell, P. (2024). Rice outlook: October 2024 (Report No. RCS-24I). U.S. Department of Agriculture, Economic Research Service. Retrieved November 2024, from, https://www.ers.usda.gov/webdocs/outlooks/110219/rcs-24i.pdf?v=5219.8


    Loy, Ryan. “Sifting through the Rice Market: Rising Supplies and Growing Competition.Southern Ag Today 4(48.3). November 27, 2024. Permalink

  • The Disparity Between Crop Prices Received and Input Prices Paid

    The Disparity Between Crop Prices Received and Input Prices Paid

    The United States Department of Agriculture National Agricultural Statistics Service (USDA-NASS) releases monthly indexes for input prices paid and output prices received. These indexes include collecting survey responses for output and input prices for agricultural production, crops, livestock, and food commodities. The spread between these two indices often helps understand where farmers are getting price squeezed and how their profit margins are impacted. Current farm income instability from inflationary pressures, high interest rates, and several supply chain disruptions (e.g., the Russian-Ukraine war and Panama/Suez Canal) are forcing farmers to pay higher input costs while receiving lower commodity prices, emphasizing the need to consider these indexes into the future. 

    These price indices measure the change in prices paid (and received) relative to a point in time—2011 in this case (Figure 1). The base year is often chosen during a time without prevailing inflation or major supply chain disruptions (Schulz, 2022). 2011 was a good year for agricultural production and profitability. As such, using 2011 as a base year is a way to highlight how better or worse-off agricultural producers are compared to a good year. 

    Figure 1. Crop Output Prices Received vs. Input Prices Paid

    Figure 1 compares the annual index value from 2000-2024 for the two indices with 2011 as the base year. The price received index in 2012 was 102.8%, meaning that the crop price received, on average, in 2012 was 2.8% higher than in 2011 (base year = 100%). The red circle in Figure 1 shows the beginning of a divergence between input and output prices. In 2013, when writing the 2014 farm bill, the index for input prices paid was almost exactly the index for output prices received. This is where most of our current farmer safety net support stems from, and since then, we’ve seen a major divergence in the two indices, with the widest gaps between 2014 – 2020 (USDA-NASS). From 2021 – 2022, we saw both indices increase, but the gap remained, and the divergence has grown wider in 2023 and 2024 due to declining commodity prices. 

    Another way to view the indices is to calculate how they change year to year. Figure 2 plots the same indices as Figure 1 but shows the yearly change between the index values. Using this percentage change helps producers understand 1) the volatility of crop output prices and 2) the magnitude of change as compared to the previous year. A key takeaway is that input prices are less volatile (in terms of yearly % change) than output prices. Secondly, the percentage change in crop output prices between 2023 and 2024 (-13.8%) is much larger than the percentage decrease in input prices (-1.38%) during that period.

    Without any relief in the form of improved crop prices received, figure 1 suggests farmers will continue to suffer from cost/price squeezes and eroding profit margins. Further, figure 2 shows the magnitude of that spread between the indices in Figure 1; if input and output prices continue this trajectory, an improved farm safety net will be warranted. This will be at the forefront of every producer’s mind, with ongoing Farm Bill debates in 2024.  

    Figure 2. Year-over-Year % Change in Input and Output Crop Prices


    References

    Schulz, L. (2022). Disentangling Input and Output Price Relationships. Retrieved from: https://www.extension.iastate.edu/agdm/articles/schulz/SchSep22b.html

    The Observatory of Economic Complexity (OEC). (2024). Fertilizers in Russia. Retrieved from: https://oec.world/en/profile/bilateral-product/fertilizers/reporter/rus

    USDA-Economic Research Service (2024). Farm Sector Income & Finances: Highlights from the Farm Income Forecast. Retrieved from: https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/highlights-from-the-farm-income-forecast/

    USDA- Economic, Statistics, and Market Information System. (2024). Agricultural Prices. Retrieved from: https://usda.library.cornell.edu/concern/publications/c821gj76b?locale=en


    Loy, Ryan, and Hunter Biram. “The Disparity Between Crop Prices Received and Input Prices Paid.Southern Ag Today 4(28.3). July 10, 2024. Permalink