Ep. 31 Leveraging Enterprise Budgets to Calculate Breakeven Points

00;00;09;14 – 00;00;33;28
Riley Smith
Yeah, I am. Good morning. Good morning. Welcome to another episode of Morning Coffee and AG Markets with your host, Riley Smith. And today we have Dr. Ryan Loy. We on we’re going to be talking about, something that’s kind of near and dear to my heart. I did in grad school. On one of my research projects, we’re going to be talking about leveraging enterprise budgets to calculate break even points.

00;00;34;01 – 00;00;43;12
Dr. Ryan Loy
Yes, absolutely Riley. And thank you for having me. Glad to be back. It’s been, it’s been a busy year so far, but I am excited to be back here and talking with you.

00;00;43;14 – 00;00;43;21
Dr. Ryan Loy
Yeah.

00;00;43;24 – 00;00;44;16
Riley Smith
Same for you.

00;00;44;16 – 00;00;49;15
Riley Smith
But yeah, you’re in the studio. But but but but flu and,

00;00;49;18 – 00;00;50;24
Dr. Ryan Loy
Sickness going around.

00;00;50;24 – 00;01;08;14
Riley Smith
A lot of people know a lot of sickness is going around and unfortunately, my fiancee, she is down with the weather and, I didn’t want to take a risk on getting others sick. As much as I’m around her. So we’re just going to play it safe and play it behind the computer screens.

00;01;08;16 – 00;01;26;16
Dr. Ryan Loy
Perfect. Well, yeah, I think you teed up perfectly. We’ll be talking about some enterprise budget stuff today and just kind of going through the components of that. And, you know, we’ve had, you know, we’ve had Breanna Watkins on the, the podcast before and she’s talked about enterprise budgets, and she’s the one who puts them together, actually, and develops them each year.

00;01;26;18 – 00;01;46;14
Dr. Ryan Loy
And then, we’ve also talked about calculating break even points using that profit and loss tool that we have. But I thought it was important to take a step back and just look at what an enterprise budget is and looking at how you can use just that budget itself to quickly calculate breakeven points for yourself. If you’re interested in doing that.

00;01;46;16 – 00;02;11;29
Dr. Ryan Loy
You know, especially if you have an itemized budget already and this is a good way to kind of, you know, apply that to your own farm. So, you know, the enterprise budget, you know, it contains several pieces of information. Anybody who’s used them is probably very familiar with them. And, you know, they’re trying to use those enterprise budgets to basically have a representative farm in Arkansas of what it could be to produce that crop.

00;02;12;01 – 00;02;38;24
Dr. Ryan Loy
Now, enterprise budgets could look a little different, but regardless of who developed those budgets, it they all contain the same four important components income or revenue. Direct expenses, which are also known as variable or operating expenses, depending on how you retort fixed expenses and profit. And so those are the four main components. So no matter what, no matter what university you’re using, no matter who’s developing those budgets, it’s always going to contain those parts.

00;02;38;26 – 00;03;04;27
Dr. Ryan Loy
Now, the University of Arkansas does coast enterprise budgets tailored to Arkansas crops and practices, which we can find. And we’ll link at the end of this newsletter. And they’re usually released in the fall before next year’s crop. So this year’s budget was released last fall. And that’s when you had, Brianna, on. And so today we’re just going to kind of I figured we’d go through an example just real quick, kind of talking about each one of these costs categories, how they’re developed.

00;03;04;29 – 00;03;25;00
Dr. Ryan Loy
What they include. And then we’ve talked about breakeven analysis before, but we can talk about it, from the perspective of some at least three soybean budgets for this year. So we kind of kick this off, you know, looking at the income, you know, the income portion. And again, in the newsletter, I have screenshots of each one of these pieces.

00;03;25;03 – 00;03;39;26
Dr. Ryan Loy
And so that way you can kind of take a look. And again we will link this the end of the newsletter. And you can go and look at it yourself. So the first item always is going to be revenue. So it’s going to flow from revenue to operating expenses to fixed all the way down to profit.

00;03;39;26 – 00;04;09;11
Dr. Ryan Loy
So it starts from the income, goes all the way down and boils down to the profit taking. So, you know, income for field crops is calculated as a total of quantity units sold multiplied by the selling price per unit for revenue. And that’s what it’s going to see. So if you look at the break area, if you look at the enterprise budgets, you’re going to have a unit which is a bushel, you know, a price which is some bushel, per bushel price, you’re going to have a quantity, which is how many bushels on that acre, and then you’re gonna have a total amount.

00;04;09;14 – 00;04;31;22
Dr. Ryan Loy
And one important thing about enterprise budgets is that it’s on a per acre basis or per head in the case of livestock, but it’s on a per acre basis, such that you’re looking at this from an acre and saying, okay, this is what I’m looking at for an acre. Now I’m going to extrapolate that over my entire production or over my entire enterprise, and apply that budget to all of my acres.

00;04;31;24 – 00;04;52;07
Dr. Ryan Loy
So in the case of soybeans, you know, the price is about 950 gives an expected total revenue of about $570, $570 per acre, based on 60 bushels and $99.50 per bushel selling price. Now, one of the questions we get a lot is how do we determine the prices for the enterprise budgets and your prices change a lot and more and more.

00;04;52;13 – 00;05;16;20
Dr. Ryan Loy
Most likely, the price that’s on the enterprise budget is probably not the price that you’re getting, from the elevator at the time of delivery. It could all be different. And that’s an important part of enterprise budgets. You know, it’s not meant to be a one size fits all kind of situation, but it’s meant to provide a base, a representative farm, wherein you know, the farmer can go in and just adjust the things that may be different.

00;05;16;22 – 00;05;46;05
Dr. Ryan Loy
So to, for these prices on the income side, Breanna actually does a survey of local elevator foward cash price bids taking each fall. So she goes out into the fall, takes all those cash prices. And then additional price data is gathered from August to November based on forward contracts for this year would be September 2025. Hair and grain sorghum and cotton prices are derived from December 2025 futures and soybeans are price from November 2025 futures.

00;05;46;07 – 00;06;01;16
Dr. Ryan Loy
The collected price data based on local four cash price bids are then averaged and uses the expected price. So the price we’re seeing is really just an average of all of those elevator bids in that window of time that I mentioned.

00;06;01;18 – 00;06;15;10
Riley Smith
So it’s it’s so what you’re saying it. So what you’re saying is, is that you’re getting all the bushel or your bushel amount that you’re getting is from the average yield or the average bushel amount at the elevator, not off of,

00;06;15;13 – 00;06;16;28
Dr. Ryan Loy
On the prices, on the prices.

00;06;17;03 – 00;06;17;25
Riley Smith
On the prices.

00;06;17;25 – 00;06;36;01
Dr. Ryan Loy
Okay. On the on the prices. So for prices that’s going to be gathered for quick cash price bids during that window and also taken from some futures for the nearest futures cash price at the time. And so that’s what they’re looking at. And they kind of average that all together. And that’s the price that we use. Again that’s just kind of further.

00;06;36;03 – 00;06;37;27
Riley Smith
So sorry.

00;06;37;29 – 00;06;38;05
Dr. Ryan Loy
No, go ahead.

00;06;38;07 – 00;07;02;07
Riley Smith
But so the prices so you’re saying forward contracting or your, your nearby futures, what you’re at for 2024/2025 specifically. So Breanna what she did this fall. And then this is a quote I’m asking this in the form of a question. So this past fall, she went out and she looked at the nearby futures for the 2025 season harvest season.

00;07;02;07 – 00;07;03;11
Riley Smith
Correct.

00;07;03;13 – 00;07;16;15
Dr. Ryan Loy
It’s from that season. So she’ll look for from the time that she’s building these into the time that they kind of get solidified. She’s looking at that forward. You know that that next contract when these would be delivered based on this budget because this is a budget for that next year okay.

00;07;16;15 – 00;07;55;28
Riley Smith
So so I guess I’m curious because like, I helped her do some of these budgets this past year, and I’m not sure I wasn’t quite familiar with how she got the prices for there. Is it like in this scenario we’re talking about the prices per bushel? This 950 per bushel, which I mean was which what’s roughly about average of what last fall’s prices were, I guess the she adjust those getting closer or does she just use what she has?

00;07;55;28 – 00;07;58;12
Riley Smith
Because, I mean, that’s a long time out from the she I.

00;07;58;12 – 00;08;26;01
Dr. Ryan Loy
Think that the the use what they have at the time and what they can because prices change all the time. And again, you know, the, the goal of these enterprise budgets is to not be perfect or is it to be exact or applicable or that individual farm, it’s just meant as a base to say, hey, based on average cash bids and, price data from other forward contracts for that, delivery for that next delivery window for these budg budgets.

00;08;26;03 – 00;08;32;10
Dr. Ryan Loy
This is just an average price based on all of those. But the farmgate price could look a lot different for that individual.

00;08;32;12 – 00;08;35;06
Riley Smith
So it’s just basically a foundation. She’s given a.

00;08;35;11 – 00;08;36;19
Dr. Ryan Loy
Foundation. That’s right.

00;08;36;22 – 00;08;50;00
Riley Smith
Foundation equation for you to go in and say, well, this is where my bushels per acre was. This is what my price was. And you’re able to tweak that as a grower, your grower and figure out what your total revenue.

00;08;50;00 – 00;08;56;18
Dr. Ryan Loy
So that’s right. You download the Excel file, you can go in and manipulate this any way you want. And that’s that’s really the point of these.

00;08;56;24 – 00;08;59;22
Riley Smith
Okay. I just wanted to I just wanted to be clear on that because you were saying

00;08;59;22 – 00;09;00;04
Dr. Ryan Loy
no, no,

00;09;00;05 – 00;09;05;02
Riley Smith
you’re saying so much about September 25, forward contracts and just.

00;09;05;03 – 00;09;31;28
Dr. Ryan Loy
Yeah. And so without getting too lost in the weeds there, you know, the important part to really take away from that is that the the, the price that you see on the budgets is just an average over cash bids that we have and some forward contracts that we have and averaging those prices, you know, if somebody is interested, they can read the fact sheet or the newsletter that we kind of put together on this and kind of understand the different months and for the different crops and all that kind of stuff.

00;09;32;04 – 00;09;41;26
Riley Smith
It’s just a to get a general understanding. It’s a place holder. But at the same time we didn’t she didn’t pull these prices and these bushel amounts out of thin air either,

00;09;41;26 – 00;09;42;02
Riley Smith
right.

00;09;42;04 – 00;09;43;28
Dr. Ryan Loy
Oh no not that’s right.

00;09;43;28 – 00;09;48;08
Riley Smith
There is some research behind it that she went and gathered them from. But

00;09;48;11 – 00;09;48;22
Dr. Ryan Loy
that’s right.

00;09;48;25 – 00;09;59;02
Riley Smith
The amount of time between now and the time of 2025 harvest, that price and that price change and obviously yield is going to change very.

00;09;59;02 – 00;10;11;29
Riley Smith
And you know, weather and all our every other kind of variable that goes into a farming operation, that’s just place holders in the time for you to be able to go in and change that. So you can determine.

00;10;11;29 – 00;10;37;09
Dr. Ryan Loy
What that is. That is the point of these budgets to go in and change them to represent your farm. And for, for the yields. Just to your point, the yield amount of 60 bushel an acre, as the one that’s live right now for industry, soybeans for 2025, those are actually utilized. Those are, excuse me, derived from average yields from the Arkansas Road Crop Verification program.

00;10;37;12 – 00;10;59;22
Dr. Ryan Loy
So they’re small plot verification fields. Actually, I don’t think the verification fields are small plot, but they are verification fields are farmers who allowed to go out, the specialist to go out, and utilize they actually do those true on farm practices specialists will collect that data. And that’s an average based on the the verification program fields.

00;10;59;24 – 00;11;06;24
Dr. Ryan Loy
And so again, just a placeholder. But it’s, it’s it’s an educated guess. That’s what we can say. An educated estimate.

00;11;06;27 – 00;11;09;07
Riley Smith
Right.

00;11;09;09 – 00;11;34;25
Dr. Ryan Loy
So another thing that’s part of the enterprise budgets, is that’s included is, you know, rent. And so it’s very important part in Arkansas and so if you go and look at the enterprise budgets and again, they’re screenshots in our newsletter, there is a landlord share and a tenant share. And you can adjust that landlord share to whatever you want based on your, based on that individual’s actual, crop share lease.

00;11;34;27 – 00;11;58;28
Dr. Ryan Loy
And you can look at that, it will tell you what your tenant share was and your landlord share was. The example that we’re using here is going to be a 75%, 25%, or the producer maintains 75% of their revenue and 100% of the expenses. And so that’s something to kind of look for. Then, then the next category on the enterprise budgets is, direct or operating expenses.

00;11;59;00 – 00;12;19;08
Dr. Ryan Loy
And, you know, the total operating expenses are the total of all production expenses incurred when planting the crop. So it doesn’t matter what crop it is. In this case, we’re looking at soybeans, you know, but it’s an itemized production expenses. So that’s the important part. So she goes through and she itemize each part of the production expenses per acre.

00;12;19;11 – 00;12;32;19
Dr. Ryan Loy
And then again, if you’re using those budgets, you can look that over that itemized list and say, well, that fits my operation or that doesn’t fit my operation, I’m going to take it out or remove it or adjust that price based on what I do or my specific operation.

00;12;32;25 – 00;13;01;09
Riley Smith
Right. And the better and the better. Record keeper you are. That’s right. Yes. Keeping your operating expenses, your fertilize, your your seed, your farm equipment, right, all of your fuel costs, etc. and once again, it’s, it’s an equation set up for for the common man to be able to go in and or woman, common person to be able to go in and not have to do all the data coding and the Excel sheets.

00;13;01;09 – 00;13;20;00
Riley Smith
And so if you have that number, that specific number of what reports represent shares your operating expenses per variable. Now you can go in and put that in and get a more a better or truer accurate, price value or return of expense per acre.

00;13;20;03 – 00;13;36;13
Dr. Ryan Loy
That’s right. And to your point and to to one thing to bring up is that, when you look at the, when you’re looking at the enterprise budgets, what you’ll notice is that some of the values are black font and some of them are blue font. The blue font values are the ones that you can change, and the equations will not be impacted.

00;13;36;13 – 00;13;38;22
Dr. Ryan Loy
The equations will adjust based on that.

00;13;38;24 – 00;14;01;00
Riley Smith
So so for the listeners, I’m looking at it right now what he’s talking about. So these blue items that he’s talking about, when you look at the enterprise budgets and he used Enlist E3 soybeans for irrigated 12 ac-inch, Arkansas, 2025. So you have item which is soybean, your commodity, unit which is in bushels.

00;14;01;03 – 00;14;09;19
Riley Smith
If that’s cotton, that’s pound. If it’s, I don’t know, it’s rice with rice. Is it in a colored white or is it in bushels?

00;14;09;22 – 00;14;13;18
Dr. Ryan Loy
I think we have it in 100. We have it in bushels for the enterprise budget. Okay.

00;14;13;20 – 00;14;37;06
Riley Smith
And then you have price change, the price of the value in bushel and then quantity. The amount of bushels or pounds that you receive, under yielded and then your total amount and then your landlord, you have a share percentage. That share percentage, you can change the percentage that it was shared. And then everything else is pretty much locked in value of what you’re going to get, your total amount and your tenant share.

00;14;37;08 – 00;14;45;17
Riley Smith
I just to get that out there so people are not looking at it at the time, at right now, they just have a general idea as we’re talking.

00;14;45;20 – 00;15;08;14
Dr. Ryan Loy
It’s right. And, yeah, in this case, and those fixed, formulas will adjust based on your new, input data. Input data back to operating expenses. You know, these are going to be everything that it takes to produce the crop. And so when you’re thinking about operating expenses, you’re thinking about expenses that change depending on the amount of production.

00;15;08;17 – 00;15;26;21
Dr. Ryan Loy
Right? So you know, you’re not going to incur a diesel expense or a fertilizer expense if you don’t play it. Right. Those are all subject to how much you play and how much you’re going to go over. And so that’s what we’re looking at from here. These are going to be variable costs. They vary based on the amount of production and pricing for these budgets.

00;15;26;23 – 00;15;56;02
Dr. Ryan Loy
For the operating expenses is really sourced by surveying local dealers and supplies of crop for text and fuel, fertilizer, seed and farm equipment. So just like you rarely, brand calls around and kind of surveys a lot of people and then gets a good estimate, you know, a lot of data in and basically takes the average of those, if prices are unavailable locally, you know, in the state of Arkansas, she’ll utilize online retailers, regional crop budget data and last sold prices.

00;15;56;05 – 00;16;18;12
Dr. Ryan Loy
Sometimes, although the last sold prices can sometimes be skewed. So they tried to do that all the time unless they really have to the next, the next two categories we have fixed expenses and then your profit, just like I said. So again, fixed expenses are a little different than operating expenses. Fixed expenses are cost that are incurred even if a crop is not planted for the current crop season.

00;16;18;12 – 00;16;25;16
Dr. Ryan Loy
So these are not these don’t vary by the level of production. These are going to be fixed. You’re gonna have to pay them whether you plant or you don’t plant regardless.

00;16;25;16 – 00;16;25;23
Riley Smith
Yeah.

00;16;25;23 – 00;16;27;05
Dr. Ryan Loy
Regardless there’s no.

00;16;27;13 – 00;16;30;17
Riley Smith
Other crop in the ground or not. That’s right. Their payment.

00;16;30;20 – 00;16;56;07
Dr. Ryan Loy
Their payments. And so fixed expenses are items such as implements and equipment, you know, paying those off, power units and equipment used in irrigation as well as buildings. You know, it’s important to note here that fixed expenses could be cash. So such things as taxes, insurance and interest payments on your, borrowed money. Or non-cash, such as depreciation and interest on, invested money.

00;16;56;07 – 00;17;23;24
Dr. Ryan Loy
Now, depreciation is important to bring up. And that’s something that, you know, I’m working on kind of developing a little fact sheet to talk about that a little bit more, but it’s a non-cash expense. Essentially. The idea is you are trying to put away money to replace your machinery when it’s useful. Life runs out. And, you know, that’s a little bit out of the scope of the conversation for this, for this, example and for this, newsletter.

00;17;23;24 – 00;17;28;01
Dr. Ryan Loy
But, you know, make sure that you’re accounting for those economic costs and.

00;17;28;02 – 00;17;47;29
Riley Smith
Definitely it definitely needs to be brought up, though, because yes is definitely something that, I think a lot of, us there’s a lot of controversy that a lot of people don’t. Some people understand depreciation, some don’t. They don’t understand then some some have, confusion that how how depreciation is.

00;17;47;29 – 00;17;55;07
Dr. Ryan Loy
Calculated and depreciation is to say, okay, you have a useful life of some equipment, you know, that you’re going to need a new piece of equipment when it’s.

00;17;55;07 – 00;17;55;24
Riley Smith
Right.

00;17;56;00 – 00;18;21;24
Dr. Ryan Loy
No longer in its useful life. So how do you how do you make sure you have some set aside as well. And so that’s essentially what you’re doing. You’re just accounting for how much it’s losing every year. Putting that aside. So it’s a non-cash expense technically. But it’s kind of the reason I brought it up. But the reason that it’s, you know, I talk about it here and it is an important part, but in the terms of break even and that we’re talking about here, we’re looking at that from an operating cost perspective.

00;18;21;27 – 00;18;42;27
Dr. Ryan Loy
And so the reason we’re doing that is because, you know, again, like if we’re, you know, fixed costs are not considered here in the short run. These expenses are already pay or incurred regardless of production level. And, you know, kind of thinking from an economic theory perspective, operating expenses aren’t covered. Then fixed expenses certainly won’t be. So you need to cover those operating expenses.

00;18;42;27 – 00;19;17;10
Dr. Ryan Loy
Make sure you can you break even or, you know, break even is something you, you know, in years, like in years like the last two years, maybe your goal is to just break even because commodity prices are so low relative to the high cost. And so it depends on the year and that ebbs and flows. But ensure that even if you’re calculating these at, at at the operating expense level and just covering your operating expenses to break even, that you set up at time or you set up where, okay, next year, I can’t just break you that I have to have profit because I need to set aside some of those other, fixed expense,

00;19;17;12 – 00;19;41;28
Dr. Ryan Loy
cost categories such as depreciation and, some interest expenses. So from that perspective, you know, using breakeven analysis again, we’ve talked about this before. Break even just ways your income relative to the costs okay. So essentially you know putting that another way break even analysis is the price or yield point in which your income equals your expenses.

00;19;42;00 – 00;20;04;19
Dr. Ryan Loy
And in this term we’re looking at operating expenses. Now it’s worth noting that it’s if you’re a very risk averse producer, I’m a risk risk averse person. You can include fixed expenses in here. And that way you’re definitely covering your operation, your total expenses, and you may not have to worry about it. If your goal is to cover everything.

00;20;04;22 – 00;20;24;22
Dr. Ryan Loy
But that depends on your own personal risk preferences and how they operate, how your operation runs. You know, looking at it from that perspective, if you’re including fixed cost, your breakeven price and your breakeven yield are going to be higher than what it would be for, you’re just covering your operational expenses. And so that’s something to think about.

00;20;24;22 – 00;20;47;07
Dr. Ryan Loy
Again, when we’re looking at a price, a very low price environment. And high input costs, right. And so if we’re trying to calculate a break even price and we’ve talked about this before, but just kind of walking through this idea, you’re going to you’re going to basically weigh that, you know, if we’re looking at price times, the yield is equal to operational cost.

00;20;47;08 – 00;21;08;16
Dr. Ryan Loy
That’s the formula that we’re setting up here. So price times yield is your revenue equals your operating cost which is your expenses. So when they’re equal to each other that means it’s net profit of zero right. Net profit of zero implies that you didn’t lose anything but you didn’t profit anything either. You just covered all the expenses you needed to.

00;21;08;19 – 00;21;37;11
Dr. Ryan Loy
And so when you’re calculating that for a price, let’s say a price based on some expected yield, you have, if you have records or you have a county average. So that’s my expected yield this year. And we’re looking at this from the enlist E3 budget perspective. Under an operating cost of $506 an acre, an expected bushel of 55, so 55 bushels an acre, you can calculate price by rearranging that equation I was just talking about.

00;21;37;11 – 00;22;00;09
Dr. Ryan Loy
And again, it sounds a lot. This is not an algebra class. This is nothing crazy. All all that needs to be done is just taking that operating cost and dividing it by your expected bushels. And so if you’re what you’re essentially doing is taking that operating cost and spreading it out amongst all your bushels, if you’re spreading that out amongst all your bushels, what is that price to where that revenue is going to equal?

00;22;00;09 – 00;22;34;26
Dr. Ryan Loy
Those expenses? So in the case of, in the case of enlist E3 here, you’re looking at about $9.20 to break even above your operating expenses. Now, what’s an important part here? Important part is that I’m not including a crop share agreement here. Calculating it that way assumes that you have full ownership of the land. But you can still account for that partial, excuse me that, the crop share by adding the portion that is your revenue.

00;22;34;26 – 00;22;59;03
Dr. Ryan Loy
So in this case, 75%, 25% goes to the landlord. And what you’re going to do is take that. If you have $506 in operating expenses, you’re going to divide that by the 55 bushels an acre that you expect, and you’re going to multiply that 55 bushels an acre times 75%, because that’s all you’re really getting, right? You’re getting 75% of those bushels, right.

00;22;59;06 – 00;23;27;18
Dr. Ryan Loy
And from there, you’re going to have 506 divided by 41.25 bushels. And your break even price based on that is going to be 1226. So you can see how much how drastically that changes. You know, you went from a very realistic break even price to an unrealistic break even price. Right. And so, you know, think about that and account for that when you’re looking at your, you know, your crops, your leases and getting into a lease.

00;23;27;20 – 00;23;44;27
Dr. Ryan Loy
Now the easiest part about the nice thing about it is, okay, so we, we, we, calculated this from the perspective of we have an expected yield, but we don’t know what our price is going to be. Now, let’s say we have an expected price that we’re going to get, but we’re really unsure about our yield. So let’s say that I’m forward contracting.

00;23;44;27 – 00;24;13;13
Dr. Ryan Loy
And I locked in at a price. Let’s say that I locked in at a price of 1051, which is the USDA Risk Management Agency’s, price forecast this year. And assuming the operating costs of 506, dollars per acre, you’re going to do the exact same thing. So whereas before we took 506, divided it among our bushels, now we’re going to take 506 and divide that by our dollars per bushel.

00;24;13;16 – 00;24;39;07
Dr. Ryan Loy
How many bushels is that going to required to cover that right. So if you take 506 divided by ten, 51 bushels per acre, you’re going to get 48 bushel per acre for a break even price. Again, that’s assuming you own the let. If we look at this from the other perspectives of not owning the land and a 7525 crop share, you’re going to do $506 per acre.

00;24;39;07 – 00;25;14;25
Dr. Ryan Loy
Your operating expenses divide that by 1051 times 75%. Again, because you’re only getting 75%. You’re only able to retain 75% of that $10.51 an acre. And you still have to cover 100% of your expenses, right? So now it’s going to be 506 divided by $7.80 an acre or per bushel. Excuse me, $506 an acre, divided by $7.80 per bushel is going to get you to about 64 bushels an acre for a break, even under that crop share agreement.

00;25;14;27 – 00;25;44;02
Dr. Ryan Loy
So I bring that up because it’s important to consider both of those perspectives, depending on your particular rental agreement. And again, if we’re including fixed costs into this equation, all of these values, both the price per bushel and the bushel per acre will increase. One last thing to think about, when you’re doing this, we’re looking at this from a perspective of just covering our expenses.

00;25;44;04 – 00;25;52;23
Dr. Ryan Loy
But the question may become, well, how do I deal with this? In the case of I want to profit, but I also want to make sure I’m breaking even to I will.

00;25;52;23 – 00;25;55;09
Riley Smith
When I was wanting to revisit that.

00;25;55;11 – 00;26;23;29
Dr. Ryan Loy
So this is important part. So again, we’ve talked about based on our budgets, we have $506 in operating expenses. Right. And let’s just say that $506 in operating expenses okay. But let’s say that I want a $100 profit above my operating expenses. So I want to bake in to my budget 500. I want to bake into my budget $100 profit.

00;26;24;02 – 00;26;45;21
Dr. Ryan Loy
So what should I do? Well, very simply, let’s say I’ve got $506 of my known expenses. I want to put a buffer in there though, to make sure I have a profit. I’m going to add $100 to that, and I’m going to call it my profit margin. And so now my total expenses to break even on is $606 an acre.

00;26;45;24 – 00;27;09;07
Dr. Ryan Loy
And you use that value to recalculate those prices in that bushel per acre that we just went through a minute ago. And now you’ve calculated a price, a break even, basically a price at which you can break even a and have $100 over that, over your operating expenses. So you can kind of bake in that profit potential.

00;27;09;10 – 00;27;29;19
Riley Smith
And I just did the math on that. So if you had $606, you had that $100 profit margin divided by the current, the price that you used of $10 and 51 is your lock in bushel price. You would end up at, you know, it’s it’s a decimal but it’s really 58 bushels per acre. Yeah.

00;27;29;21 – 00;27;31;21
Dr. Ryan Loy
So there you go. There you go.

00;27;31;23 – 00;27;58;01
Riley Smith
So that’s so what I’m reason while you were it’s it’s interesting you said that. So I want to revisit this. We saw that as you was talking about operating expenses versus fixed expenses. And you can actually calculate both of those into each other. So that way you have what I would call a it’s not a direct terminology for it, but a hard price.

00;27;58;03 – 00;27;59;02
Riley Smith
Or our FAQ would be.

00;27;59;02 – 00;28;04;13
Dr. Ryan Loy
Essentially your your your true true your your economic break even so to speak.

00;28;04;15 – 00;28;07;04
Riley Smith
So your your true cost.

00;28;07;07 – 00;28;08;29
Dr. Ryan Loy
That that’s right. Total cost.

00;28;09;02 – 00;28;43;14
Riley Smith
Total cost. That’s including operating expense fixed expense I guess that what named in my mind was just thinking about field. And and you may be looking at me like, why are you thinking about fields? Because each field talking to, growing up around it and talking to talking to all my buddies, this field over here on the South Line may have produced it produces less than everything it’s got.

00;28;43;17 – 00;28;49;02
Riley Smith
So the average say, if it’s beans say, the average yield might be 40 bushels okay.

00;28;49;06 – 00;28;49;25
Dr. Ryan Loy
And then the.

00;28;49;25 – 00;29;14;05
Riley Smith
Other. And then he’s got, he’s got another field center really a big field. You know 2 or 300 hundred acre field in the center of the farm that produces 60 to 80, bushels an acre. And, you know, on that you calculate your operating expenses for per acre, correct,

00;29;14;08 – 00;29;14;26
Dr. Ryan Loy
per acre.

00;29;14;26 – 00;29;22;09
Dr. Ryan Loy
And assuming you’re operating, you’re assuming your operating expenses are similar on those fields. It’s just a different matter of, projection.

00;29;22;14 – 00;29;54;14
Riley Smith
That’s that’s it. So I was wondering if you could calculate your per acre basis based on each field. So that way you have an accurate production number for it, operating expense per field per acre. So therefore you can generate how to you then can take your fixed expenses. And then you can divide it out amongst is does that make sense to divide it out amongst your fields.

00;29;54;17 – 00;30;14;08
Riley Smith
Because if it took less it takes I don’t and I don’t know I don’t know that answer. Maybe it’s I don’t know. Well I think the same. Does it take the same amount. Does it take the same amount to go into each field. Because each field is going to be different based on their soil samples, right? we are getting into the agronomy of it now.

00;30;14;08 – 00;30;41;04
Riley Smith
But you might have to put more fertilizer on one field. You may have had to spray one field more. You have to change chemical. So the operating expense on each field could be completely different for the neighboring adjacent field. But that being said, you could take that total fixed expense because it’s going to be there regardless and divided amongst to level out each field.

00;30;41;07 – 00;31;08;05
Dr. Ryan Loy
You certainly could do that, although that might be a little complicated. I mean, the best thing to do would be okay if all of my fields, let’s say that I farm 100 acres, and some proportion of those acres are a little bit different than the other proportion. Well, I mean, I again, I hate to get too much in the weeds here, but you can take a weighted average based on the expenses for that acre, you know, can you expenses for these acres, is this amount okay.

00;31;08;05 – 00;31;24;24
Dr. Ryan Loy
That’s 25% of my 100 acres. So if I’m looking at this from entire enterprise budget standpoint per acre basis, you know, take that weighted average for each one of those different fields and there’s your expense category total. Does that make sense when I’m saying yeah I mean that’s a way to do it. There’s many ways to do it.

00;31;24;24 – 00;31;32;13
Riley Smith
Seems to add up all the total operating expenses, all the fields that. Yeah, that gives you a one number. Yeah.

00;31;32;13 – 00;31;49;09
Dr. Ryan Loy
And, you know, again, if you’re from your perspective, what you’re saying a weighted average would make the most sense. So that way you can account for an on average again. So it would be very important to the point being where on average you’re breaking it okay okay. So that that that’s the idea there.

00;31;49;11 – 00;31;50;21
Riley Smith
I’m just putting this here.

00;31;50;25 – 00;31;56;24
Dr. Ryan Loy
This you can cut you can cut your entire field in the per acre things and do a budget for each one of them. If you want.

00;31;56;26 – 00;32;21;24
Riley Smith
No I was I was just thinking, I don’t know where I was thinking with that, but, it was if you could, if you could level out, if one field had a lower operating expense, you could take some of that fixed expense, put it on that one, and then so on and so forth. But at the same time, you could also take and, make them be confusing everybody that’s listening to this.

00;32;21;26 – 00;32;34;08
Riley Smith
But then you could take all the operating expenses or weighted values of each field, add them all together, and that’s a total operating cost for your operating.

00;32;34;10 – 00;32;36;28
Dr. Ryan Loy
You. Yeah. You could I guess.

00;32;37;00 – 00;32;37;14
Riley Smith
And then.

00;32;37;14 – 00;32;57;04
Dr. Ryan Loy
Do that. That’s that’s a lot that’s a lot to, keep track of because, you know, trying to just like, spill over the, the fixed expenses to those others that you don’t want to account for. The idea being, is that if you’re going to account for fixes, fences on one, you’re going to count for fixed expenses on every single acre.

00;32;57;06 – 00;33;12;10
Dr. Ryan Loy
And I mean, I don’t know, but, you know, I would imagine that the differences in operating expenses among certain fields may be different, but not that much different. That’d be my that’d be my guess. I could be wrong. Now. I’d be curious, too.

00;33;12;17 – 00;33;37;04
Riley Smith
I just I’m just curious because, like, you’ll know exactly how much chemical you used on one field. You’ll know exactly how many, how many seeds per acre you planted on one field. You’ll know exactly. Or you’ll know the the average yield when you cut on a combine on a field. Because, I mean, you talked to a guy, he’s like, well, I got one field that you know, we’ve talked about and corn.

00;33;37;04 – 00;33;46;11
Riley Smith
And you know, I had one that cut 225. And then I had another field that cut 280 you know. And so they’re going to have an average yield.

00;33;46;14 – 00;34;01;05
Dr. Ryan Loy
In that perspective. The the easiest thing would be to do is to add up or, you know, add up all of your value action, all of your value production, add up all the value of your operating expenses. Recalculate it based on that.

00;34;01;05 – 00;34;08;24
Riley Smith
Yeah, that that’s where I ended up with. No, but I think that’s what you do. But listen like running rabbits you know it’s like that you.

00;34;08;24 – 00;34;10;10
Dr. Ryan Loy
you took the long route but you get out there.

00;34;10;10 – 00;34;20;07
Riley Smith
Yeah. If I when I got, I got to process it through my mind because I’m, it’s kind of like running rabbits. You know, you kick the beagels out, they’re going to run that rabbit. Well, that rabbit’s eventually going to circle back around to you.

00;34;20;08 – 00;34;23;04
Dr. Ryan Loy
So that’s right. You’ll get there. And that’s what we got there.

00;34;23;06 – 00;34;41;09
Riley Smith
That’s right. We got there. That’s the main point. So that’s right anyway. Well Doctor Ryan we’re running pretty close on time on the zoom call. I appreciate you taking time out of your busy schedule. I know it’s for the production meeting season and you or also you teaching at your teaching class, right?

00;34;41;09 – 00;34;42;11
Dr. Ryan Loy
Yes, sir. Yes.

00;34;42;11 – 00;34;45;21
Riley Smith
I don’t know if it’s coming too close to the end or if it’s all spring.

00;34;45;23 – 00;34;48;10
Dr. Ryan Loy
No, it’s all spring. So they’re getting ready for their first exam.

00;34;48;10 – 00;34;50;17
Riley Smith
And you’re just doubled up, ain’t you?

00;34;50;19 – 00;34;52;14
Dr. Ryan Loy
It’s something else, man. I’ll tell you.

00;34;52;16 – 00;35;18;00
Riley Smith
All right. Well, I greatly appreciate it. Thanks, everyone, for listening. And, you all stay tuned for my market report. Thanks, ladies and gentlemen, back with your market report March 25 corn current prices at $4.90 per bushel. Month ago, prices at $4.77 per bushel. That’s up $0.13. Year agos prices at $4.31 per bushel. That’s up $0.59.

00;35;18;03 – 00;35;44;06
Riley Smith
March 25 Rice current prices at $13.81 per cwt . Month ago, price was at $14.50 per cwt. That’s down $0.69 a year ago, was at $18.37 per cwt. That’s down $4.56. March 25 soybeans current price is at $10.28 per bushel. Month agos price is at $10.53 per bushel. That’s down $0.25 and a year agos price is at $11.86 per bushel.

00;35;44;06 – 00;36;13;11
Riley Smith
That’s down $1.58. July 25 wheat current price is at $5.99 per bushel. A month ago. Price is at $5.68 per bushel. That’s down. That’s up $0.31 a year agos prices at $5.98 per bushel. That’s up $0.01 March 25 Cotton current prices at $0.67 per pound. Month agos price is at $0.68 per pound. That’s down $0.01 and a year ago prices at $0.92 per pound.

00;36;13;11 – 00;36;45;04
Riley Smith
That’s down $0.25. Weekly U.S average peanuts. Current prices at $520 per ton. Month agos price is at $468 per ton. That’s up $52. And year ago, prices at 524 $524 per ton. That’s down $4. And that’s your weekly commodity futures this week. Your fertilizer prices this week, Urea is at $499 a ton, ammonium nitrates at $432.50 per ton, ammonium sulfates at $500 per ton.

00;36;45;04 – 00;37;19;26
Riley Smith
DAP is at $743.50 per ton, triple Super phosphates at $716 per ton, potash is at $392.50 per ton. AG lime. We’ve started including Ag lime, by the way, AG Lime is at $48.50 a ton. That’s delivered, and pellet lime is $225.44 per ton in diesel prices this week. Off road diesels $2.75 per gallon. Highway diesel is at $3.31 per gallon, and your Mississippi River lev River level at Memphis, Tennessee this week, current levels at 18.1ft and a year ago was at 12.46ft.

00;37;20;03 – 00;37;30;01
Riley Smith
Want to thank you all again for joining in on another episode of Morning Coffee and AG Markets. We hope you enjoyed it. Enjoyed your morning coffee this morning as you tuned in. So until next week we’ll catch y’all on the flip flop.

00;37;30;06 – 00;37;46;00
Riley Smith
Bye bye now.