Break-Even Point
Also called: break-even, BEP
The break-even point is the yield or price at which a farm's revenue from a crop exactly equals its total production costs — zero profit, zero loss. Break-even price = total costs ÷ total yield; break-even yield = total costs ÷ (price × area). Any sale above break-even is profit; below it is a loss.
How Break-Even Point Works
Break-even analysis answers the most important question in farm finance: how low can price or yield go before this crop costs me money? Calculating break-even requires three inputs: total variable costs (seed, fertilizer, pesticides, irrigation, labor), total fixed costs (land rent, insurance, equipment depreciation, loan interest), and either expected yield or expected selling price.
Example: 10-hectare corn crop with variable cost €1,500/ha (= €15,000) and fixed cost €2,000 (land rent + insurance) = €17,000 total. If expected yield is 10 tons/ha × 10 ha = 100 tons, the break-even price is €17,000 ÷ 100 = €170/ton. If the farmer has a forward contract at €200/ton, break-even yield drops to €17,000 ÷ €2,000 = 8.5 tons/ha — meaning the farmer can afford a 15% yield loss before going into the red.
Break-even is the foundation of risk management. A farm running at 10% margin (price is 110% of break-even) cannot absorb a 15% yield drop or 10% price drop without losses. A farm at 30% margin (price is 130% of break-even) has genuine resilience. Sensitivity analysis — how does break-even shift if yield or price falls 10% — turns the single break-even number into a complete risk picture. Use WiseYield's free Break-Even Calculator to run this analysis in under a minute.
Sources
- Purdue Center for Commercial Agriculture. Farm financial analysis workbook.
- Iowa State University Extension. Crop budget and break-even calculators.