Category: Farm Management

Arkansas has experienced a significant expansion in irrigated cropland since the beginning of the 1980s. From Census year 1982 to Census year 2017, irrigated harvested cropland acres grew from 2.022 million acres to 4.848 million acres, respectively, representing an increase of +2.826 million acres (USDA, NASS, 2023a). The majority of this increase in irrigated cropland acres (approximately 75% of the increase) was due to the expansion of irrigated soybean area. 

Figure 1 presents Arkansas soybean harvested acres split into all acres, non-irrigated acres, and irrigated acres for the years 1979 – 2018. All soybean harvested acres (non-irrigated + irrigated) dropped from a record level of 5.15 million acres in 1979 to 3.20 million acres in 1988 and thereafter remained relatively level for the state at 3.21 million acres. Non-irrigated acres dropped steeply from 4.80 million acres in 1979 to 0.51 million acres in 2018, while irrigated acres expanded from 0.35 million acres in 1979 to 2.71 million acres in 2018. It is obvious that most expansion in irrigated soybean acres was the result of converting non-irrigated acres to irrigated acres. Every county in eastern Arkansas experienced an increase in irrigated soybean area during this time, but counties experiencing the greatest expansion were those bordering the Mississippi River, where ample water from lateral river recharge of the underground aquifer allowed for greater transition of non-irrigated area to irrigated area (Gautam and Watkins, 2021). 

A major factor for the upward trend in irrigated soybean acres in Arkansas is the increased world demand for soybeans, particularly in China. Increased world demand for soybeans has increased the value of soybeans relative to other crops grown in the state, such as rice and cotton. However, a more fundamental and straightforward reason for expanded irrigated acres is more consistent yields under irrigation relative to non-irrigation. Figure 2 presents detrended soybean yields for Arkansas non-irrigated soybeans versus irrigated soybeans from 1979–2018. Yields have been detrended to remove the influence of technological advancement over time. Yields were 12.6 bushels per acre greater on average under irrigation compared to non-irrigation. Also, variation around the irrigated soybean mean, which represents yield variation due to weather, is considerably narrower relative to variation around the non-irrigated soybean mean. Thus irrigation makes soybean yields more stable relative to yields under non-irrigation. 

The phenomenon of expanded irrigated soybean area was not isolated to Arkansas alone. Other locations in the Mid-South also experienced significant irrigated soybean area expansion during the same timeframe. Changes in both irrigated acres and irrigated soybean acres from Census year 1982 to Census year 2017 are presented for locations in the Mid-South. All Mid-South locations in Table 1 receive most irrigation water from the Mississippi River Valley alluvial aquifer. Irrigated soybeans account for approximately 69% of increased irrigated area expansion in this region. Arkansas experienced the largest expansion in soybean area (75% of increased irrigated area) but all locations experienced significant expansion as well.

Preliminary evidence indicates that irrigated soybean acres may be leveling off in many parts of Arkansas, particularly in counties farther removed from the Mississippi River, where groundwater is more limiting. However, expansion in irrigated acres appears to continue in counties bordering the Mississippi River. A closer evaluation needs to be conducted to verify these preliminary findings.

Table 1. Change in Irrigated Acres and Irrigated Soybean Acres (Census Years 1982 to 2017) for Mid-South Locations.
Change Category	Arkansas	Mississippi	Northeast Louisiana	Southeast Missouri	Total Change
Change in Irrigated Acres	2,826,397	1,381,386	490,458	957,188	5,655,429
Change in Irrigated Soybean Acres	2,108,158	952,742	293,230	538,836	3,892,966
Irrigated Soybean Expansion (%)	74.6%	69.0%	59.8%	56.3%	68.8%
Source: Derived from USDA-NASS Census of Agriculture data.

References and Resources

Gautam, T.K. and K. B. Watkins. 2021. Irrigated Acreage Change and Groundwater Status in Eastern Arkansas. Journal of the American Society of Farm Managers and Rural Appraisers 2021. https://higherlogicdownload.s3.amazonaws.com/ASFMRA/aeb240ec-5d8f-447f-80ff-3c90f13db621/UploadedImages/Journal/2021Journal_ASFMRA_HR.pdf

USDA-NASS (2023a). United States Department of Agriculture, National Agricultural Statistics Service, Census of Agriculture. https://www.nass.usda.gov/Publications/AgCensus/2017/Full_Report/Census_by_State/Arkansas/index.php

USDA-NASS (2023b). United States Department of Agriculture, Quick-Stats. https://quickstats.nass.usda.gov/

Watkins, Brad. “The Rise of Irrigated Soybeans in Arkansas.” Southern Ag Today 3(32.3). August 9, 2023. Permalink

Historically, commercial poultry grower loans have been considered by lending institutions to be among the lowest risk agricultural loans due to the secure nature of the grower’s contract with poultry companies. However, the increasing cost of new facilities in the last few years has quickly outpaced the average farmer’s ability to obtain new loans without financial support. For example, a typical broiler farm consisting of eight houses, 54 feet wide by 550 feet long each (237,600 square feet), can easily cost $22 per square foot or over $5,000,000. This cost does not include a land purchase. A traditional 20% equity requirement would mean approximately one million dollars of mortgageable equity or cash influx would be required to secure such a loan. Thus, most of these loans now go through some government funded, farm-oriented program that helps growers obtain loans. 

For example, the USDA’s Farm Service Agency loan guarantee program can effectively cut the equity requirement in half. There are fees and qualification guidelines for these loan programs, and not all applicants are accepted. Equity is not the only problem. Interest rates have become a significant obstacle. The FSA restricts the interest rates charged by banks for their guaranteed loans to a maximum of the 5-year constant maturity treasury (CMT) rate plus 5.5%.  Figure 1 illustrates the changes in this max rate since July 2022. According to farm financing institutions, loan rates for most growers in July of 2022 were averaging around 5%. Due to inflation and other uncertainties, as well as the rising CMT, the current average rate for poultry loans is now closer to 8%, with expectations of further increases by the Federal Reserve. A couple or three percentage points doesn’t sound like much, but in the case of these large loans over a typical 15-year term, it can mean an increase of 18-20% in annual payments, or over $100,000 per year.  

At the same time, like all farmers, poultry growers are dealing with rising utility and labor costs. Higher loan payments combined with higher costs have a significant negative impact on the cash flow of new farms. Many potential new growers are unable to obtain funding at all due to the resulting low debt service margins. To help relieve the cash-flow pressure, many lending institutions have moved to offering 20-year terms on poultry loans. This decreases the annual payment but also increases the total interest paid over the term. If you combine increased interest rates with lengthier loan terms, the result has effectively doubled the overall cost of building a new farm from a year ago, making it extremely difficult for new growers. 

To assist growers in securing the financing to build new housing, poultry companies are addressing farm cash-flow problems by supplying funding directly to the growers, either in the form of additional pay incentives over the loan period or in the form of up-front money used to pay down the initial loan, decreasing the equity required and the annual loan payment. These incentives have almost doubled over the last year due to the factors discussed (See Fig 2). Some obvious questions arise from the situation. For the industry, “How long can poultry companies continue to offer these increasing cash incentives before profitability begins to suffer?”, and for consumers, “At what point will housing difficulties impact supply, potentially increasing chicken prices?”

Fig 1: Farm Service Agency Guaranteed Loans Maximum Interest Rate 

Fig 2: Comparing Cash Incentive Payments and Total Interest Cost for a New 8-house (54’x550’) Farm in 2022 and 2023 Resulting from Changes in Interest Rate and Loan Term

What is the value of the nitrogen, phosphorous, and potassium that is removed when hay is baled and carried away from the field? In March, we looked at wheat straw nutrient removal¹, but the value of nitrogen, phosphorous, and potassium should also be considered in hay production.

Baling and removing 8,000 pounds of Bermuda grass hay over the course of a hay season removes 400 pounds of nitrogen (N), 90 pounds of phosphorus (P2O5), and 345 pounds of potash (K2O) per acre². Prices of $0.71 per pound of nitrogen, $0.73 per pound of phosphorus, and $0.61 per pound of potash³ were used to reflect the approximate value of the nutrients. The table below shows the value of the N, P2O5, and K2O removed on a per acre basis when 8,000 pounds of Bermuda grass hay is removed. The value of the nutrients removed by the Bermuda grass hay is $561.61 per acre per year. Or on a 1200-pound round bale basis, that value is $54.24 per bale. Adding the cost of baling (1200 lbs. round bale) of $14.50⁴ per bale and moving⁴ the bales out of the field at $4.35 per bale brings the total costs to $103.09 per 1,200-pound bale.  Converting these values to a per ton basis (4 tons/acre), the nutrient value is $140.40 per ton, and baling and moving is an additional $31.42 per ton. The total per ton costs are $171.82.

It should be noted that this is just the value of N, P, and K, as there are some micronutrients that are removed as well. 

There are caveats. The amount of hay harvested, costs of nutrients, baling and moving will likely be different depending on numerous factors, including location, yield, type of bales, the efficiency of the baler, and soil type. Check local resources in your area to estimate the value/cost of the nutrients and baling costs. 

Information for the values included in this article can be found in the following resources.

1.    https://southernagtoday.org/2023/03/29/wheat-straw-nutrient-removal/

2.   https://www.aces.edu/wp-content/uploads/2019/01/ANR-0449.REV_.3.pdf

3.    https://www.ams.usda.gov/market-news/production-cost

4.  http://agecon.ca.uky.edu/files/custom_machinery_rates_applicable_to_kentucky_2022.pdf

	N (Nitrogen)	P2O5 (Phosphorus)	K2O (Potash)
Pounds/acre removed	400	92	345
Nutrient price/pound	$.71	$.73	$.61
Nutrient value removed	$284.00	$67.16	$210.45
Total Value of Nutrient Removal		$561.61/acre or $84.24/ 1200 lb. round bale

In forage production, whether that is establishing a forage system or simply maintaining it, it is important to understand what costs are involved and how these can impact your break-evens. A break-even is the price/yield needed in order to cover your total costs. Depending on the type of forage system you have, the costs can be relatively expensive. Developing an enterprise budget is one way of examining and comparing these costs.

Figure 1 shows the costs per acre from forage enterprise budgets developed at Mississippi State for four different forage maintenance systems: 1) conventional alfalfa hay, 2) permanent summer pasture, 3) mixed grass hay, and 4) hybrid bermudagrass hay. The conventional alfalfa and the hybrid bermudagrass systems had the highest costs per acre at $957.63 and $954.22, respectively. Permanent summer pasture maintenance had the lowest costs per acre at $282.24/ac.  Fertilizer, herbicide, and machinery costs make up a large portion of the costs in each system. Machinery costs include fuel, repair and maintenance, and interest costs. 

Figure 1. Costs per acre for forage maintenance production systems in Mississippi

Figure 2 shows the break-even curves for each of the four forage production systems. Break-even curves show the price and yield needed to cover total specified expenses. Price/yield combinations below this curve would result in losing money, and any combination above the curve would generate a profit. The market price shown in the figure was the average hay price received by producers in Mississippi for 2022 at $126/ton. Hay prices and costs can vary significantly from state to state, so again, it is important to adjust for your situation. However, the basic idea is that production systems with higher costs need a higher price, yield, or both to be profitable. For example, at the Mississippi 2022 market price and assumed costs, a permanent summer pasture system would need to produce 2.2 tons/ac to break-even. A mixed grass hay system would need 4.9 tons/ac to break-even. A conventional alfalfa hay system and a hybrid bermudagrass hay system would each need to produce around 7.6 tons/ac given a price of $126/ton. As such, permanent summer pasture and mixed grass hay are two of the more popular forage systems in Mississippi.

Figure 2. Forage maintenance break-even curves in Mississippi

More information on these costs, as well as over 20 additional forage maintenance and establishment budgets for Mississippi, can be found at: https://www.agecon.msstate.edu/whatwedo/budgets.php. It is important to determine what your specific costs are, and these can vary significantly from state to state and by production system. Below are links to enterprise budgets developed by agricultural economists for each state in the Southern Region.

Alabama: https://www.aces.edu/blog/tag/profiles-and-budgets/?c=farm-management&orderby=title

Arkansas: https://www.uaex.uada.edu/farm-ranch/economics-marketing/farm-planning/budgets/crop-budgets.aspx

Florida : https://fred.ifas.ufl.edu/extension/commodityenterprise-budgets/

Georgia: https://agecon.uga.edu/extension/budgets.html

Kentucky: https://agecon.ca.uky.edu/budgets

Louisiana: https://www.lsuagcenter.com/portals/our_offices/departments/ag-economics-agribusiness/extension_outreach/budgets

North Carolina: https://cals.ncsu.edu/are-extension/business-planning-and-operations/enterprise-budgets/

Oklahoma: http://www.agecon.okstate.edu/budgets/

South Carolina: https://www.clemson.edu/extension/agribusiness/enterprise-budget/index.html

Texas: https://agecoext.tamu.edu/resources/crop-livestock-budgets/

Tennessee: https://arec.tennessee.edu/extension/budgets/

We have now past the midway point for the 2023 calendar year. We are carefully and optimistically watching our crops develop as well as keeping tabs on global events. It has been another wild year with crazy weather and its effects around the country, from areas of drought and high heat, to areas where excessive moisture has produced standing water and flood warnings. The upheaval in Eastern Europe, Russia’s ongoing attempt to take over Ukraine, continues to create a variety of issues around the globe. With all the issues taking place, we are seeing variability and fluctuation in commodity prices, both positive and negative, and we can sometimes get dizzy thinking about all of the “what ifs.” When this happens, we choose not to want to think about it, and it simply creates management decision paralysis. We need to eat this elephant one bite at a time, and possibly request some assistance from the right individuals. Make sure you have the right information to make the best decisions that can be made to prepare for the rest of the season and year. 

This is a good time to take a few steps to ensure you are on the right track for risk mitigation. 

1. Have you scouted your crops to estimate yield, barring any late-season weather-related disasters? Does this match your marketing plan, or do adjustments need to be made? For livestock, do you have the feed necessary on hand/or being produced? Does additional feed need to be purchased? What options are available to lock in prices and supplies that allow for profit?
2. Review your marketing plan and determine if any changes need to be made. Is it time to look at additional hedging or spreads opportunities to help mitigate price/marketing risk?
3. Do you have labor available and can you afford what is needed? Is mechanization required to cut back on labor, and does it pay to do so? 
4. Have you run cash flow estimates for where you believe you will be at the end of the year? Do you need to make adjustments, prepare for tax management strategies before the end of the year, cut back on expenses, increase sales of culls, other inventory to access cash, etc.?

Although the above-mentioned situations are things that we normally think about, we typically don’t give the thought each of those deserves as we get overrun with daily tasks on the farm. However, a mid-year check to mitigate risk may offer the opportunity for the farm or ranch to increase its cash flow. There are a number of resources available to assist farms and ranches in understanding the decisions to be made, and possibly even performing a true analysis of the farm financials. You should begin by contacting your local farm management/agribusiness Extension staff, legal and tax professionals, and others. But it must start with a plan, the farm/ranch goals, objectives, and knowing your numbers. If you do not have a way to collect the “numbers,” including production, income, costs, etc. or able to produce an easy way to review the information, you may be making decisions based on information that is incomplete at best.

With the variables presently at play today, it’s time to take a deep dive into what shocks your farm/ranch enterprise(s) can handle to determine the farm’s economic stability and sustainability.  But without knowing the farms’ “numbers” the owner/operator will not know how to appropriately plan for potential changes. 

Reach out to your local Cooperative Extension service and your legal and tax professional. Additional resources and tools can be found through your local Cooperative Extension website, and at ruraltax.org (www.ruraltax.org), Center for Farm Financial Management (https://www.cffm.umn.edu), National Council of Agricultural Employers (NCAE) (https://www.ncaeonline.org).

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Kantrovich, Adam. “Mid-Year Review and Planning.” Southern Ag Today 3(28.3). July 12, 2023. Permalink