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Bentley Fitzpatrick of LSU AgCenter’s Bossier City station uploads a PowerPoint presentation for Michael Deliberto, ag economics expert at the AgCenter in Baton Rouge at the Louisiana Agricultural Technical Management Conference earlier this year.

Increased cotton acreage calls for number crunching

New to cotton, do your homework

Although nationwide, 2019 cotton acreage is expected to increase only slightly — 2.9 percent — over 2018, the Mid-South is poised to add 13.6 percent more cotton, led by Louisiana’s 22.2 percent jump in estimated acreage, moving from 195,000 acres last year to an estimated 238,000.

Mississippi adds the most acreage, up 114,000, from 620,000 last year to 734,000 in 2019, an 18.4 percent increase.

Arkansas will plant just more than a half-million acres, 555,000, up from 485,000 last year, a 14.4 percent increase.

Missouri increases by 6.9 percent, 347,000 acres compared to 325,000 last year.

Tennessee farmers will add 5.9 percent, 381,000 acres compared to 360,000 last year.

An acreage increase that significant could mean a lot of farmers are either getting back into cotton or planting it for the first time, says Dr. Michael Deliberto, Department of Agricultural Economics and Agribusiness, Louisiana State University Agricultural Center in Baton Rouge.

Deliberto, speaking at the annual Louisiana Technology and Management Conference earlier this year in Marksville, La., says would-be cotton farmers need to look at some numbers before they put seed in the ground.

Those numbers still look favorable for cotton, compared to other options such as corn, soybeans or grain sorghum, he says.

But markets are volatile, especially with the ongoing trade dispute with China, which has taken a significant bite out of U.S. cotton exports. Reduced exports to Turkey also hurt U.S. cotton prospects.

Bullish factors for 2019 cotton, Deliberto says, include declining world carryover, a declining carryover for China, declining world production, a trend of increasing world consumption, the smallest crop from India in nine years (which indicates India will import U.S. cotton), and two large countries reducing stocks.

Bearish Factors

On the flip side, bearish factors include, the U.S./China trade war, two important markets effectively closed to U.S. cotton (China and Turkey account for 4 million bales of U.S. Cotton), two textile economies reducing spinning, the expansion of Brazilian acreage for field crops, and the U.S. facing a 4.5-million to 5-million bale production increase.

Deliberto says farmers can expect weaker prices on increased production. Assuming an increase in cotton acres (as indicated by the NCC’s survey) and a lower abandonment rate, the U.S. cotton crop could top 21 million bales.

Most analysts still assume a 72 cents per pound market, and Deliberto estimates producers will have to make more than $497 per acre from dryland production and $557 per acre on irrigated cotton to cover direct costs, citing the

2019 Projected Commodity Costs and Returns for Cotton Production in Louisiana  document. Dryland yield would have to push 670 pounds per acre to cover that cost. On irrigated acreage, yield would have to hit between 788 and 810 pounds per acre.

Production Costs

The other factor will be production cost. Chemicals account for the biggest outlay. Combined, insecticide and herbicides account for about $133 per acre; fertilizer adds another $92. Other costs include repairs at $36; labor, $24; miscellaneous, $18; seed, $33; fees, $81; custom operations, $31; and interest, $14.

Experienced farmers may trim some of those expenses but must manage carefully to avoid costly yield losses. Fertilizer costs, for instance, may vary depending on residual nutrients from previous crops. Soil sampling could make a significant difference in fertility expenses.

Marketing also plays a role in profit opportunity. “At 72 cents, we find a lot of cotton not priced,” Deliberto says. “It is important for producers to calculate their breakeven price as it relates to their production costs (including land rent) and incorporate this information into their marketing plan when identifying marketing opportunities.”

As planting season nears, he suggests all cotton farmers, but especially the new ones, consider the bearish factors — rising ending stocks, tariffs, competition (especially from Brazil), interest rates (recent Fed statements indicate no more increases planned for 2019), reduced export numbers (exports to China and Turkey off 20 percent), and the global economy, which is slowing and resulting in less discretionary income.

Harvest Options

Back to those returning and new-to-cotton farmers. Cotton production requires specialized harvest equipment, and a significant investment if producers decide to purchase either a basket or a round bale picker. Deliberto says the basket picker, a John Deere 7660, for instance, costs about $450,000. The John Deere round bale picker sets producers back $767,000.

Per acre cost for the basket picker is estimated at $74.15. The round bale picker costs less per acre, $60.65. The difference comes from the additional equipment required for the basket picker — boll buggy, two tractors, and a module builder.

The other option is custom harvest, and Deliberto says the per acre costs still favor owning a round bale picker, at a certain acreage level.

“If the machine were to be used on 615 acres or more, it would be less expensive to own the machine, given a 10 cents per pound custom harvest fee on a farm with a 950-pound yield,” he says.

Producers should also look at other crop options, soybeans and corn. Deliberto refers to a graph showing corn prices compared to cotton. At 71 cents a pound, cotton looks better by $15 per acre than $3.65 corn. That’s assuming a 1,050-pound per acre cotton yield and $500 per acre variable costs, and corn at 175 bushels per acre and $430 in variable costs.

For soybeans, 71-cent cotton is better by $32 than $9.75 soybeans. That’s considering the same 1,050-pound per acre yield and $500 variable cost for cotton, and a 55 bushel per acre yield and $365 per acre variable cost for soybeans.

For more information see: https://bit.ly/2FMKdj5.

Risk Management Tools

Cotton producers have tools to manage risks, Deliberto says. The seed cotton program is new for the 2018 crop year and was maintained with the new farm bill. The PLC program, expected to be the preferred choice among producers, is designed to provide price support when the price of lint and cottonseed drop below the congressionally established reference price. The marketing loan program is also continued in the new farm bill.

They also have options for crop insurance, including traditional revenue protection and yield protection policies for the 2018 crop year.

They also have STAX. “Both STAX and a supplemental coverage option (SCO) — a crop insurance option that provides additional coverage for a portion of your underlying crop insurance policy — programs consider area-wide yield and/or revenue performance in calculating an indemnity payment (when applicable),” Deliberto says.

Planting time is fast approaching so producers must finalize cropping plans within weeks yet remain flexible enough to react to changing conditions. An unusually wet winter and early spring, for instance, could limit corn acreage and push producers into even more cotton or soybeans.

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