Many associate the phrase “breakeven” as the point where revenue and operating expenses are equal. But for ag producers, this breakeven point may leave significant cash needs unmet. Producers will need cash for interest obligations, payments on long-term debt obligations and family living and income taxes in addition to operating expenses. FLOID helps producers calculate their annual total cash requirements for the farming operation.
In the above example, the producer needs $1,160,000 of revenue to meet its whole farm cash requirements. If operating expenses are removed from FLOID, FL_ID remains, which totals $250,000 in this example. FL_ID is the earnings (EBITDA-Earnings Before Interest, Taxes, Depreciation, and Amortization) required to fulfill all cash obligations.
FLOID can also be used to calculate breakeven cash prices for each commodity in consideration. The table below provides a 2-step process for a hypothetical producer in the southeastern United States.
This information is useful to help determine the crops to grow by comparing current price expectations to actual prices being offered via futures, cash forward contracts or production contracts. Producers also use this information to evaluate changes needed in production costs or yield to achieve breakeven commodity prices for their operation.
Consider attending the 2022 Executive Marketing seminar to develop your own pricing signals using FLOID. Details can be found at www.clemson.edu/extension/agribusiness.
Mickey, Scott. “Getting to Know FLOID.” Southern Ag Today 1(52.1). December 20, 2021. Permalink
