Cereal Rye Financial Guide
Cover cropping has been increasingly recognized as a valuable conservation practice. The U.S. Census of Agriculture first questioned producers about their cover crop use in 2012. At that time, the census reported that cover crops had been planted to 10.3 million acres, excluding Conservation Reserve Program acreage. The census also shared that 133,124 operations had adopted cover crops in 2012.
Cover crops have gained appeal as they can promote soil health and create a highly productive growing environment. Depending on the cover crop(s) selected, producers may observe that cover crops increase soil organic matter content, improve nutrient management, decrease nutrient leaching, reduce soil erosion, alleviate soil compaction, ease pest pressure and possibly suppress disease. Realizing these benefits may lead to reducing input costs and driving cash crop yields.
Producers interested in using cover crops are encouraged to choose those that can facilitate field condition improvements for a given environment. Thus, cover crop selection hinges on specific field conditions, individual farmer or landlord preferences and overall farm goals.
For producers considering cover crop adoption, they can relatively easily estimate cost requirements. Producers should account for potential input cost reductions linked to cover crop use, and they should also quantify costs associated with cover crop seed, additional field operations and more extensive management.
Access a cereal rye cost-return budget here. Typically, industry perceives cereal rye as an inexpensive cover crop that establishes itself relatively easily, even in poor growing conditions. Relative to alternative covers, cereal rye seed is fairly inexpensive on a per pound basis. For producers who broadcast cereal rye seed during late fall and are concerned about stand establishment, they may seed cereal rye at a higher rate, but that practice would add costs.
When assessing crop profitability, producers are accustomed to comparing annual production costs with revenues. Gauging return on investment for cover crops may be more challenging because they provide long-term benefits that ultimately impact yield, but these same long-term benefits are more difficult to evaluate annually. The next two sections outline direct and long-term benefits that may be captured from a cereal rye cover crop. This information can help producers to weigh cereal rye costs and benefits.
Direct Impacts of Planting Cereal Rye
Cereal rye tends to perform well when seeded with a legume cover crop. However, it can grow in mixes with grasses or other cereal grains, too. Cereal rye is known for its ability to minimize soil nutrient leaching; however, it can also tie up nutrients such as nitrogen. Planting a cereal rye-winter annual legume mix can address spring nitrogen issues associated with such nutrient tie-up. Plus, the cereal rye can provide protection to other cover crop seedlings that lack hardiness. For example, a cereal rye and hairy vetch blend works well as the cereal rye catches nitrogen and protects hairy vetch, and the hairy vetch supplies nitrogen. Typically, mixing cereal rye with a legume also will enhance dry matter production.
Growing cereal rye may also generate some forage value as pasture or hay. For pasture, cereal rye commonly is mixed with triticale or a cool-season alternative, and to maximize hay quality, blend cereal rye with forages like red clover, crimson clover or annual ryegrass. In Missouri, producers may assume that cereal rye yields two tons of forage per acre as a baseline estimate. Assuming that the harvested cereal rye has a $65 price per ton, the cereal rye could generate an immediate $130 per acre in income for a grower.
For a time after killing cereal rye, the residual biomass can impart allelopathic properties that address weed pressure. They also deter weed seeds from germinating. Naturally, allelopathic compounds have such herbicide-like effects, but they generally last just roughly 30 days. To maximize the allelopathic properties, let the cereal rye residues accumulate on the soil surface. Incorporating them would reduce the allelopathic effect’s longevity.
Cereal rye grows quickly, and with a large root system, it can capture moisture from snow and other precipitation and support moisture conservation. This moisture may especially have value in situations when the growing season experiences dry conditions.
Longer Term Benefits Associated with Cereal Rye Use
Growing cereal rye also generates several longer term benefits for agricultural acreage. Long-term benefits associated with cover crop adoption refer to those realized for more than a single planting season, and they include diminished nutrient leaching, reduced soil erosion, decreased soil compaction and improved soil organic matter levels. The following list emphasizes long-term benefits specific to cereal rye.
- Erosion control: Biomass produced by cereal rye plants can serve as an important windbreak. In vegetable production, maintaining such a windbreak between rows can minimize wind erosion. On sloping surfaces, the cereal rye root system can discourage soil losses. Cereal rye roots provide good erosion prevention benefits because they have a fibrous structure and grow quickly.
- Nutrient management: With its extensive root system, cereal rye can catch soil nitrogen that would otherwise go unused and possibly contaminate water supplies. Additionally, the cereal rye root system can pull potassium deep from the soil profile to increase exchangeable potassium concentrations closer to the surface.
- Weed control: Known for producing ample organic matter, cereal rye residue can readily compete with weeds for resources. Winter annuals can be crowded by cereal rye, and during the summer, cereal rye residue can provide cover that deters weeds. Cereal rye residues can best suppress weeds if they’re not incorporated. The cereal rye itself can present a weed issue if not managed properly to avoid mature seed production. Small grain crops with commingled cereal rye seed would earn a lower price.
- Soil structure: With its root system, cereal rye creates a soil environment that has improved drainage capabilities. Plus, roots that grow deeply can resolve compaction issues. Cereal rye surface residue also adds organic matter. Soil structure improvements are more likely to accumulate over time than they are to change immediately after one cereal rye stand.
- Pest suppression and beneficials support: Growing cereal rye can manage issues involving pests. Beneficial insects like lady beetles are also attracted to the cereal rye. Additionally, root-knot and other nematodes can be suppressed by cereal rye.
As indicated earlier, such long-term variables are difficult to discern on an annual basis, but they all eventually impact crop yields. According to the 2014/2015 SARE/CTIC Cover Crop Survey, raising cover crops can have a measurable effect on yield. The survey data suggested that cover crops preceding corn and soybean production nationally increased yields by 3.7 bushels per acre and 2.2 bushels per acre, respectively, on average. Nationally, corn yields averaged 176.2 bushels per acre when produced with cover crops relative to 172.5 bushels per acre in scenarios without covers. Soybeans with cover crops yielded 53.6 bushels per acre nationally on average compared with 51.4 bushels per acre in fields without covers. These estimates were based on corn yields reported by 401 operations and soybean yields shared by 362 operations.
Financial Assistance Programs
Growers who add cover crops to their operations may consider several financial programs that can offer assistance. Two USDA programs – the Conservation Stewardship Program and Environmental Quality Incentives Program – and some state efforts have assistance available to eligible applicants. The Conservation Stewardship Program offers five-year contracts to producers who pursue various conservation endeavors, such as growing cover crops. The contracts may dictate annual payments for adding or maintaining conservation practices, or they may provide supplemental payments for projects focused on resource-conserving crop rotations. Depending on the conservation program adopted, operations could receive Conservation Stewardship Program payments that ranged from $1,500 to $40,000 in 2016. Within this range, higher conservation performance yields higher payments. The industry anticipates an overhaul for Conservation Stewardship Program parameters in 2017. For more information about applying, contact a USDA Service Center.
The Environmental Quality Incentives Program from USDA offers financial and technical assistance to eligible applicants. It specifically supports conservation efforts that address soil, water, plants, animals, air and other natural resources. Financial assistance opportunities can be used to adopt permitted conservation activities or form a Conservation Activity Plan. For Missouri growers, the EQIP program in 2016 included financial assistance opportunities for growing cover crops that were winter kill species or chemical or mechanical kill species. The payment rate varied between the two. The program continuously accepts applications, but states may impose some application period deadlines. Producers interested in learning more about the Environmental Quality Incentives Program may contact a local USDA Service Center.
At the state level, other assistance programs may be available. For example, Missouri announced the Cover Crops for Soil Health and Water Quality project in March 2016 using Regional Conservation Partnership Program funding. This project provides that 20,000 acres in Missouri could annually grow cover crops. To be eligible, acreage would need to have the highly erodible designation, or it would need to have organic matter levels lower than 2 percent.
Charney, Alyssa and Ferd Hoefner. 2016. USDA Announces Conservation Stewardship Program Sign-up for 2016. National Sustainable Agriculture Coalition. Washington, DC 20002.
Conservation Technology Information Center, North Central Sustainable Agriculture Research & Education and American Seed Trade Association. 2015. 2014-2015 Annual Report Cover Crop Survey. Conservation Technology Information Center. West Lafayette, IN 47906.
Missouri Department of Agriculture. 2016. Missouri Agriculture Awarded $2.4 Million to Expand Cover Crops on Farmland . Missouri Department of Agriculture. Jefferson City, MO 65102.
National Agricultural Statistics Service. 2014. 2012 Census of Agriculture Highlights: Conservation . USDA National Agricultural Statistics Service. Washington, DC 20250.
National Soil Dynamics Laboratory. Cereal Rye. USDA Agricultural Research Service. Auburn, AL 36832.
National Soil Dynamics Laboratory. Cover Crop Costs. USDA Agricultural Research Service. Auburn, AL 36832.
Natural Resources Conservation Service. Cereal Rye Plant Guide. USDA Natural Resources Conservation Service Elsberry Plant Materials Center. Elsberry, MO 63343.
Natural Resources Conservation Service. Conservation Stewardship Program. USDA Natural Resources Conservation Service. Washington, DC 20250.
Natural Resources Conservation Service. Environmental Quality Incentives Program. USDA Natural Resources Conservation Service. Washington, DC 20250.
Natural Resources Conservation Service. MO 2016 EQIP. USDA Natural Resources Conservation Service. Washington, DC 20250.
Sullivan, Preston. 2002. Rye as a Cover Crop. Appropriate Technology Transfer for Rural Areas. Butte, MT 59701.
Sustainable Agriculture Research & Education. 2007. Cereal Rye. Managing Cover Crops Profitably, 3rd Edition. College Park, MD 20742.
Farm Financial Assessment
Farm financial performance and records are important to consider when evaluating a new alternative crop. Past financial performance, current financial condition and the capacity to take on risk influence alternative crop adoption viability. If you need external financing to kick start your entry into alternative crop production, then your lender will likely want to see a good business plan and, if available, financial and production histories.
Financial recordkeeping systems are important for tracking financial performance and making decisions. You can keep records manually through a written system or electronically through a computerized system such as Quicken or Quickbooks. For you to make sound decisions, financial records need to be kept current and accurate.
Information from financial statements and income tax records can measure a farm’s financial position and performance. The balance sheet, statement of cash flows and income statement are three important financial statements. Balance sheets communicate the financial condition of a farming business on a specific day, such as the beginning or end of the year. They share detailed information about a farm’s assets, liabilities and equity. The statement of cash flows (cash in, cash out) shows cash receipts and cash expenditures during a certain time period. The income statement reports the revenue, expenses and profit during a given time period. Historical balance sheets, statements of cash flows and income statements demonstrate how the business has performed. Additionally, these statements can be used to project the business’ future performance. IRS Schedule F and 4797 tax forms are important to existing producers for accurately conducting accrual-adjusted financial analysis.
Key financial measures also help to evaluate a farm’s financial condition. Numerous financial measures can help with evaluating a farm. Usually, these measures tend to look at the profitability, financial efficiency, liquidity and solvency of the business. Examples include return on assets, the operating expense ratio and the debt-to-asset ratio. Lenders typically use a set of key measures when they evaluate loan applicants. Key financial measures can also help with benchmarking your farm relative to other operations. Benchmarking data can be obtained through developing good relationships with other local farmers who are willing to share some of their key financial measures. Alternatively, you may try contacting state recordkeeping business associations, universities or extension services.
Many tools and spreadsheets available online may assist producers in developing financial statements, keeping records and conducting financial analysis. Additionally, accountants, bankers and other business specialists are good resources who may assist with assessing farm financial performance.
For More Information
Farm Finance Scorecard (Minnesota)
Farm Analysis Solutions Tools (FAST) (Illinois)