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Conventional, conservation-tillage costs compared for cotton

Conventional, conservation-tillage costs compared for cotton
The specter of herbicide-resistant weeds multiplying at astronomical rates has changed some growers’ thinking on the matter of conservation-tillage. Extension economists at the University of Georgia have completed an investment comparison of conventional- and conservation-tillage equipment using enterprise budgets.

Facing the unenviable task of battling glyphosate-resistant Palmer amaranth pigweed, some cotton growers are considering making the switch from conservation-tillage production back to conventional-tillage.

Over the years, farmers have chosen conservation-tillage for many reasons, including incentives from government programs, benefits to soil and water quality, on cost savings on labor and equipment. But the specter of herbicide-resistant weeds multiplying at astronomical rates has changed some growers’ thinking on the matter.

For this reason, Extension economists at the University of Georgia have completed an investment comparison of conventional- and conservation-tillage equipment using enterprise budgets. The impact of variable fuel and chemical prices on the investment decision were evaluated using a sensitivity analysis. Breakeven yields and prices needed to realize a return on investment were also calculated.

Cotton has always been a very capital and labor-intensive crop, considering the specific equipment that is required, as well as the time and other inputs needed to grow it, says Amanda Smith, UGA Extension economist.

“Investment decisions for equipment are extremely important,” she says. “The great thing about higher cotton prices is that it makes the equipment investment decisions a little easier. You can cover those fixed costs, where in some years we were getting by just covering the direct, variable and operating expenses. We can’t do that in a long-term way and be sustainable, so investment decisions are definitely important.”

With the increased weed pressure and the problem with herbicide resistance, some growers who already are doing conservation-tillage are looking at ways to deal with this situation other than with hand labor or chemicals, and they’re considering a switch to conventional-tillage, says Smith.

She and other UGA economists looked at the investment and operating costs for the equipment, the yield needed to make an annual payment on an operating note, calculated the break-even prices and yields at varying acreages, and conducted a sensitivity analysis looking at different fuel and herbicide costs.

“The first thing we looked at was the investment and operating costs,” she says. “We used the enterprise budgets because they use Extension recommendations for production practices, and they’re representative of production practices in south Georgia, although we know that individual farms do vary.”

Also, the economists compared pre-harvest implements only, assuming that growers already were in cotton production, and they assumed that new equipment was purchased, realizing that growers oftentimes buy used equipment at auction.

This study was presented earlier this year, accounting for the lower prices considered for diesel fuel and cotton.

“First, we took a look at a conventional-till operation. We have a 30-foot disk with a rip-and-bed operation. Most of our equipment is eight-row, and our budgets are based on 850 acres for this analysis. We plant with in-furrow pre-emergence, using a 165-horsepower tractor, post-emergence directed spray, a nitrogen side-dress application, and a high-clearance sprayer with five trips over the field,” she says.

The new equipment purchase resulted in a total cost of $260,000. For operating costs, the cost of diesel was calculated at $2.85 per gallon and labor at $11.25 an hour, with a labor factor of 25 percent to account for switching implements and other factors. Repairs and maintenance are based on about 3 percent of the investment cost. The operating cost for conventional equipment comes out to about $32.80 per acre, and the fixed costs based on 850 acres of cotton is about $36 per acre.

Reduced-tillage analysis

For the reduced-tillage analysis, there is an additional spray for the burndown treatment in the spring, says Smith. “Then we have a rip, strip and plant operation all in one, with a pre-emergence herbicide at 200 horsepower, an eight-row post-emergence directed spray, nitrogen side-dress application, and the high-boy sprayer. There’s a reduction in operating costs because there’s a time-savings, fuel savings, and repair and maintenance savings since we’re not using as much equipment. It’s about $10 less than the conventional. For the fixed cost, we’re estimating about $8 per acre less than the conventional. The investment cost is $50,000 less than conventional for the conservation equipment.”

There is a savings from a machinery operation standpoint and fixed-cost standpoint to using reduced-tillage, says Smith. “However, with the increased weed pressure in Georgia, our budget emphasizes that we’re trying to prevent the spread of resistant Palmer amaranth pigweed, and we have very intensive sprays. So you’ll see that the variable costs or the operating expenses for conservation-tillage are actually higher. Where we previously saw the benefits of conservation-tillage with the savings in equipment, it is being outweighed by the higher chemical costs we have for reduced-tillage, specifically in Georgia.”

The economists also wanted to see how much cotton a farmer would need to grow to make an annual payment on the purchase of new equipment.

“We decided we’d have a five-year note, making annual payments at 8-percent interest, and we assumed a 15-percent down-payment, either with cash or a trade-in value of old equipment. We assume that cotton accounts for 50 percent use of all implements, except the directed sprayer and the nitrogen side-dress applicator, which account for about three-quarters use on the farm. We assumed irrigated yields at 1,100 pounds and dryland yields are 700 pounds. We assumed a price of 85 cents per pound paid to the farmer.”

As far as the principal note needed for the conventional equipment, the economists set the number at $115,000 with an annual payment of almost $29,000. With conservation-tillage, the principal is $90,000 with an annual payment of $22,000.

“As far as the yields needed to make the annual payments on the operating note, for conventional-tillage equipment, we’re looking at a range of $29 to $41 per acre. With a smaller number of acres, fixed costs will rise somewhat. For the pounds needed to pay for that, we’d need about 34 to 50 pounds. That equals 3 to 4.5 percent of irrigated yield to make the annual payment and 5 to 7 percent of dryland yield, and that assumes 85-cent cotton.”

For reduced tillage, a grower would need to make 2.5 to 3.5 percent of irrigated yield to make the payment and 4.5 to 5.5 percent of dryland yields.

“We still have to grow cotton in addition to making that annual payment, so we looked at how much it would cost to grow cotton with the annual payment and figure out break-even prices and yields for conventional- and conservation-tillage,” says Smith.

Budgeted operating costs

For budgeted operating costs, the number was $532 per acre for irrigated and $400 per acre for dryland with yields of 1,100 and 700 pounds, respectively. “We do not have land rent in our numbers because it varies significantly across the state. Take land rent into consideration when you’re deciding if you need to forward contract cotton or protect it in the futures market by hedging.”

Total costs range from $790 to $900 for irrigated conventional-till cotton and $550 to $624 for dryland. “That gives us a break-even price of 72 to 82 cents for irrigated and 80 to 90 cents for dryland. And at break-even yields, we’re looking at 900 to 1,000 pounds for irrigated and 650 to 730 for dryland. We shoot for 700 pounds in the budget, so those growers on smaller acreages will need good rainfall to break even in this analysis.”

In reduced-tillage, says Smith, operating costs are higher because higher chemical costs are higher, so irrigated is $533 per acre and dryland is $408 per acre.

“Our total costs are $777 to $870 for irrigated and $500 to $600 for dryland, giving us a break-even price of 71 cents to 80 cents for irrigated and 78 to 85 cents for dryland. Yields are 900 to 1,000 for irrigated and 645 to 700 for dryland.”

Economists also looked at the sensitivity to changes in the price of diesel and herbicides. “As far as our current operating expenses are concerned, we’re seeing a slight advantage to conventional-till. However, conventional-tillage is more sensitive to changes in the price of diesel than reduced-tillage. As far sensitivity to herbicide costs, reduced-tillage will be more sensitive to herbicide costs than conventional-till.”

In conclusion, says Smith, investment costs are higher for conventional-till equipment. However, the operating expenses are offset by the higher chemical costs for reduced-tillage. “We need 25 to 50 pounds of 85-cent cotton to make an annual payment on the note, and farmers need at least 71 cents to buy and operate their new equipment.”

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