but that cuts your yield by 25%.

Wouldn't a competing farm be more profitable to add fertilizers to the soil to replenish the loss nutrients, which means they can price out the crop rotation farm?

In most of western world agriculture is subsidized: that 25% of farm land that's on a break will be paid by the government. The gov mandates and pays also for crop rotation.

Profit includes changes to asset value; it's not in the farmer's interest to destroy his soil.

In the short term such a farm would indeed be more profitable, but in the long term? The "less profitable" farm would close shop and be replaced by a fertilizer farm... and then, as a net result, society is worse off.

This is why regulations (and to combat their evasion by other countries, anti-dumping tariffs) are needed.

You would see a 25% cut in revenue (yielded crops to market) but also would see a cut in your costs (you aren't tilling, planting seeds, harvesting, putting wear and tear on tools, transporting to market) that would offset it.

The economies of scale of industrializing farming means that cutting the planting and harvesting by 25% doesn't cut the cost by the same 25% (i.e., the same economies of scale works against you when you try to decrease your scale!).

I did not mean to imply that costs would drop by exactly 25%, just that you might not see the hit to your profit margin you would expect due to your costs also decreasing with decreasing revenue.

It doesn't, because you will get no yield if you don't let a field go fallow once in a while