Category: Crop Marketing

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

	2023	2024	2025	% Change          (2024 – 2025)
Seed ($/ac)	$43.92	$71.28	$45.36	-36.36%***
Nitrogen (N) ($/lb)	$0.40	$0.25	$0.26	4.00%
Phosphate (P) ($/lb)	$0.45	$0.35	$0.35	0.00%
Potash (K) ($/lb)	$0.41	$0.25	$0.25	0.00%
Herbicide ($/ac)	$138.78	$135.89	$131.62	-3.14%
Insecticide ($/ac)	$3.01	$9.04	$9.04	0.00%
Fungicide ($/ac)	$24.10	$11.32	$11.32	0.00%
Diesel ($/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

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

Knowing the expected cost of production for a farmer is essential for developing effective risk management and marketing strategies.  At an aggregate level, forecasts of costs provided by the USDA Economic Research Service (ERS) can offer a useful benchmark to help understand the gross revenue and cost of production for commodities at the national or regional level.  These forecasts can be used to determine breakeven prices to inform a risk management and marketing plan.

The ERS’s 2025 national cost of production forecast for major southern row crops (cotton, peanuts, corn, and soybeans) indicates a decline in fertilizer and interest costs, contributing to lower total operating cost for most crops compared to 2024, except cotton. However, rising custom rates, other variable expenses, and allocated overhead costs offset some of these savings, resulting in an expected total cost of production that is effectively the same (within +/- 1%) as the estimated 2024 cost of production.  As shown in Figure 1, peanuts has the highest forecasted total cost per acre ($1,181.84), followed by cotton ($899.96), corn ($871.09), and soybeans ($624.77), highlighting the significant investment in producing southern row crops. It is important to note that these forecasts were released by the ERS in November of 2024, before tariff threats were made, that if implemented may increase costs of some agricultural inputs, notably fertilizer.

At the currently forecasted cost of production, the negative returns experienced by row crop producers in 2024 are expected to remain a major concern for all four crops in 2025 if prices do not improve. Figure 1 shows the 2024/25 marketing year estimated gross revenue for each crop based on estimated yields and prices as of January 2025.  The gap between the two bars on each graph illustrates the potential shortfall in revenue needed to cover 2025 production costs if yields and prices are maintained at current 2024/25 marketing year levels.

Whether yields can provide increased revenue is a question for the future, but given national corn yields in 2024/25 being estimated at record levels and soybean yields being estimated at about 2% below record levels, it is more likely that price is going to be the primary driver to increase revenue for these crops. Meanwhile, multiple weather events made a major impact on cotton yields that were about 12% below record levels and peanut yields that were about 11% below record levels.  Therefore, some of the shortfall in revenue for cotton and peanuts could come from higher yields.

The other component of the revenue equation is price.  Determining a breakeven price assists in making informed decisions about the price necessary to cover production costs.  To determine a breakeven price, divide the forecasted cost of production by expected yield.  To help adjust for record yields or significant shortfalls, Table 1 shows the five-year average yield for each crop along with the computed breakeven price. At the current national forecasted cost of production and average yield for the last five years, the breakeven price for corn and peanuts would have to increase 17% over the estimated 2024/25 price.  For soybeans, the price would have to increase 21%, while cotton prices would have to rise 59%.  

Ultimately, the actual cost of production varies among individual farms, as it depends on many factors such as economies of size and scope, relationships with input suppliers, and adopted management practices. Actual yields also vary, and thus, producers need to consider their own potential breakeven price. Repeating this exercise for a specific farm can be helpful in planning, making risk management and marketing decisions, and finding potential opportunities to make efficiency improvements to reduce costs for the upcoming crop year. 

Cotton futures prices have struggled to gain traction over the past six months. The last time nearby cotton futures were above 75 cents was June 28, 2024. Since July, nearby cotton futures prices have traded mostly between 66 and 73 cents. New crop (December 2025) futures prices are currently below 70 cents, which will not provide attractive pricing opportunities for cotton producers. Additionally, if new crop futures prices remain low through the crop insurance price determination period, the safety net will be diminished and will likely result in decreased planted acres in the United States. Global supply and demand have played a role in low cotton prices. Figures 1 and 2 show global cotton demand and Brazil cotton production which have contributed to lower cotton prices. 

Global cotton demand has been flat for more than two decades and per capita cotton consumption has trended lower (Figure 1). Projected global cotton consumption for the 2024/25 marketing year is 116 million 480 lb bales, the same as 2010/2011. Competition with synthetic fibers has resulted in a lower market share for cotton and reduced demand. Improved demand will be essential if cotton prices are to improve. 

Compounding the challenges for U.S. cotton producers has been the rise of Brazil. In the last ten years, Brazil has more than doubled cotton production from 7.18 million 480 lb bales to 16.9 million 480 lb bales (Figure 2). The rise of Brazil cotton production has provided substantial competition for export markets. The combination of increased cotton production and flat global demand will continue to weigh on global cotton prices. 

Figure 1. Global Cotton Consumption and Per Capita Consumption, 2000/01-2024/25

Figure 2. Brazil Cotton Production, 2000/01-2024/25

References

USDA Foreign Agricultural Service (FAS), Production Supply and Distribution. Accessed at:https://apps.fas.usda.gov/psdonline/app/index.html#/app/home. 

Barchart.com. Nearby Cotton Futures Contract. Accessed at: https://www.barchart.com/futures/quotes/CTH25/interactive-chart. 

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Smith, Aaron. “Flat Global Demand and Increased Brazil Production Provide Challenges for U.S. Cotton Prices.” Southern Ag Today 5(5.3). January 29, 2025. Permalink

Sorghum prices have traditionally tracked corn prices, adjusted by a premium or discount primarily dictated by export demand. However, recent trends reveal a decline in sorghum premiums, driven by reduced exports, particularly to China.

In late 2024, sorghum premiums experienced a significant drop. Figure 1 shows U.S. Average Prices Received by Farmers for Sorghum Minus Corn (January 1989 – November 2024). In August, the premium stood at 70 cents over corn but fell to just 3 cents by November 2024. Projections suggest that December could witness a negative basis. This trend has been particularly pronounced in Texas, where January 2025 prices showed a discount of 59 cents per bushel compared to corn (Texas cash average price for the North, Central, and South Panhandle, USDA, AMS, Market News). 

Figure 1. U.S. Average Prices Received by Farmers Sorghum Minus Corn January 1989-November 2024(Source: NASS/USDA/Ag Prices 12-31-24)

During the 2023/24 season, the level of exports increased along with higher production and lower domestic consumption. Production in 2023/24 increased to 318 million bushels from the previous year of 188 million bushels, a result of significantly larger harvested acreage and better yields. The exports-over-domestic-consumption ratio also increased to 3.00 alongside better premiums over corn (Figure 2).

Figure 2. Sorghum to Corn (Premium or Discount) and the ratio of sorghum exports to domestic use. Source (Dr. M. Welch, USDA February WASDE, USDA, NASS Agricultural Prices)

Looking ahead, USDA’s January WASDE projections anticipate a 23-million-bushel increase in 2024/25 production, along with a rise in domestic use to 125 million bushels. WASDE increased area harvested and projected yield for the 2024/25 season compared to their latest report in December 2024. However, exports are projected to remain steady at 220 million bushels. This results in a reduced export-to-domestic-use ratio of 1.76, implying a likely premium of just 2 cents per bushel using Dr. Welch’s model to calculate sorghum-to-corn premium or discount as a function of the ratio of sorghum exports to domestic use (Figure 3). However, we are five months into the marketing year and this ratio may change as the marketing year progresses and USDA revises sorghum domestic use and export estimates.

Figure 3. Sorghum-to-Corn Premium/Discount as Function of the Ratio of Sorghum Exports to Domestic Use. Source: Dr. Mark Welch, USDA February 2024 WASDE and 2024 Ag Outlook Conference.

The slowdown in Chinese sorghum imports has exacerbated discounts. As of January 2025, U.S. sorghum export sales commitments represent only 20% of the USDA’s projected marketing year exports, far below the historical average of 75% by March (Figure 4). This shortfall has driven premiums downward and widened discounts across various regions. With only 20% of projected exports committed by January 2025, achieving the USDA’s 220-million-bushel forecast appears challenging. The direction of trade policies and tariffs will influence U.S. sorghum exports. Whether this is positive or negative for sorghum prices is yet to be determined.

Figure 4. U.S. Grain Sorghum Export Sales Commitments, 2024/25 MY. (Source: USDA, FAS, January 16, 2025). 

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Abello, Pancho. “Export Challenges Drive Down Sorghum Premiums.” Southern Ag Today 5(4.3). January 22, 2025. Permalink

The January USDA World Agricultural Supply and Demand Estimates (WASDE) report provided more revisions to the U.S. corn balance sheet. Revisions to USDA domestic corn estimates have been mostly positive for corn prices since the USDA’s September WASDE projections. This month’s revisions propelled March corn futures 20 ½ cents higher in two trading days, from $4.56 to $4.76 ½. Since the September WASDE, March corn futures have increased from $4.04 ¾ to $4.76 ½, a $0.71 ¾ increase. 

Was the price increase justified based on the revised information? Yes. 

Table 1 compares the USDA WASDE estimates in September to January for corn. The two primary changes were a decrease in the national average yield of 4.3 bu/acre (183.6 to 179.3 bu/acre), a 2.3% decrease, and an increase in exports of 150 million bushels (2.3 to 2.45 billion), a 6.5% increase. Driven by these two adjustments, projected 2024/25 marketing year ending stocks in the United States decreased 517 million bushels, from 2.057 billion to 1.54 billion bushels. A 25.1% decline in ending stocks, combined with the change in use, resulted in a decline in stocks-to-use from 13.7% to 10.2%. Small percentage adjustments to supply and demand can result in relatively large changes in stocks-to-use and the marketing year average price.

Table 1. September and January USDA WASDE Projections for Corn for the 2024/2025 Marketing Year

	2024/25 Marketing Year Projections
	September	January	Change	% Change
Planted (million)	90.7	90.6	-0.1	-0.1%
Harvested (million)	82.7	82.9	0.2	0.2%
U.S. Avg. Yield (bu/acre)	183.6	179.3	-4.3	-2.3%
Beg. Stocks	1,812	1,763	-49	-2.7%
Production	15,186	14,867	-319	-2.1%
Imports	25	25	0	0.0%
Total Supply	17,022	16,655	-367	-2.2%
Feed and Residual	5,825	5,775	-50	-0.9%
Ethanol	5,450	5,500	50	0.9%
Food, Seed & Industrial	1,390	1,390	0	0.0%
Exports	2,300	2,450	150	6.5%
Total Use	14,965	15,115	150	1.0%
U.S. Ending Stocks	2,057	1,540	-517	-25.1%
Foreign Stocks	10,082	10,008	-74	-0.7%
U.S. Mrk. Year Avg. Price ($/bu)	$4.10	$4.25	$0.15	3.7%
U.S. Stocks/Use	13.7%	10.2%	-3.6%	-25.9%

Stocks-to-use is one of the better predictors of the corn marketing year average price. In September, the USDA projected stocks-to-use at 13.7% and estimated the marketing year average price at $4.10, higher than the predicted value of $3.68 (Figure 1). In January, stocks-to-use were projected at 10.2% and the marketing year average price at $4.25, lower than the predicted value of $4.73. The muted response in the USDA WASDE price and the stocks-to-use predicted price can be partially attributed to the crop marketed between September and January.

The key takeaway from the USDA revisions to projected corn supply and demand estimates and the futures market reaction:, the revisions justify the increase in prices. Based on current information, a reasonable nearby corn futures price trading range is $4.60-$5.10.   

Figure 1. Corn U.S. Stocks-to-Use Ratio and Marketing Year Average Price 2006/07 to 2023/24

References

USDA World Agricultural Supply and Demand Estimates (WASDE) report. January and September. https://www.usda.gov/about-usda/general-information/staff-offices/office-chief-economist/commodity-markets/wasde-report.

Barchart.com. March 2025 Corn Futures Contract. Accessed at: https://www.barchart.com/futures/quotes/ZCH25/interactive-chart.