Cotton may look like a better option for many Mid-South farmers this year, but before jumping into — or back into—cotton production, prospective newcomers should take stock of what’s necessary to raise cotton.
University of Tennessee Institute of Agriculture Extension economist Aaron Smith says farmers looking to plant cotton for the first time or for the first time in several years, should do their homework before committing acreage to a new enterprise. Corn or soybean farmers may not see as good of a profit opportunity as they have in previous years, Smith said at the recent Cotton Focus seminar in Jackson, Tenn. Before making a switch, prospective cotton producers should ask themselves:
1. Where is the best profit opportunity?
Develop a cost versus price analysis, “not just for cotton but for all crops to determine potential profit or loss,” Smith says. UTIA budgets show cotton expenses at $661 per acre, a cost that will vary from farmer to farmer but is a good reference. He says producers should consider annual costs as well as long term costs. “Annual costs, seed, fertilizer and fuel, for instance, can be altered.” Capital investments are typically set for multiple years.
2. What are realistic yield and price estimates?
Assessing potential yield and price also offers an opportunity to estimate the prospects for cotton. “At 73 cents a pound, and if you can guarantee 1,000 pounds per acre, that’s some black ink,” Smith says. He suggests that if producers consider long-term cotton production, they should look out about eight years to estimate how prices and yields will flow.
3. What about ginning?
“Also consider ginning availability.”
4. What are my best harvesting options?
Smith says decisions, particularly regarding harvest equipment, will vary depending on if “you want to put a toe in or commit to a substantial amount of cotton acreage.” Machinery, especially harvest machinery, is a big consideration, for instance. It’s expensive to buy and it’s only useful in cotton.
Smith says a farmer should consider the number of acres he’s considering to plant in cotton and analyze “the cost structure for the farm.” That includes whether a producer plans for a long-term investment, five years or more, or something shorter.
He says farmers will compare a round-bale harvester to a basket picker with module builders, which requires three pieces of equipment. “The round bale machine will cover more acreage but is a long-term investment. The three-piece option is a short-term solution but requires more time, labor, and potentially repair and maintenance.
5. What are essential capital expenditures?
“Consider the capital expenditures, too” Smith advises. He says the round bale picker lists for $913,000. “Don’t pay that. You need to negotiate that down.” He says a good negotiator can save a significant amount of money. “Negotiating the price of a round bale picker will make you more money than anything else I tell you.”
He recommends establishing a per-acre cost for harvest machinery, and factor in the interest rate. The difference in per acre cost between a 2,000-acre and a 770-acre operation over eight years will be significant. In many cases, the lower acreage will not pay. The interest rate is important, even if you self-finance, Smith says. “Money doesn’t work for free.”
6. Will custom harvesting be economical, timely?
He also suggests considering custom harvest instead of buying harvest equipment. Contracting with someone else to harvest requires less capital, Smith says, but comes with other concerns. Timing could make a big difference in maintaining yield and quality in an unpredictable harvest season. “The time factor is important. Who goes first? Will you be the last harvested?”
7. What are my long-term price prospects?
Smith says prospective cotton farmers should consider long-term price potential. “If you consider a range of 62 cents to 74 cents, can you make money long term. That’s not an exact range, but it’s a good place to start.”
8. How does cotton compare to other crops?
Smith says cotton prices will be one part of the equation as producers consider crop mixes. Other commodity prices also play a role. “If cotton goes sky high, then acreage will go up as corn and soybean acreage moves to cotton. If corn prices rise, then acreage can go the other way.”
The most important factor, Smith says, before deciding whether to get into cotton, is to run the numbers. If it doesn’t work on paper, chances are good it will not work in the field.