Cotton on the Texas A&M AgriLife Farm in Snook, Texas on Sept. 9, 2021. (Sam Craft/Texas A&M AgriLife Marketing and Communications)
The 2025 crop and livestock budgets will soon be available on the Texas A&M AgriLife Extension Economics website. In today’s post, we break down the District 1 and District 2 cotton budgets and discuss what they imply about cotton production in 2025.
Projected Costs and Returns
Cotton production costs are still high relative to expected revenue. In the District 1 budgets, the projected cotton lint price is $0.04 per pound less than in 2024 and the projected seed price is $10 per ton less. In District 2, the cotton lint price is $0.02 per pound less and the cottonseed price is $5 per ton less.
Tables 1 and 2 show how lower expected prices impact expected returns from cotton production this year. Table 1 compares the expected revenue and variable cost values in 2025 to the same values in 2024. Along with lower prices, there are two other important changes in the 2025 budgets to note. The District 1 sprinkler-irrigated budget revises the expected lint yield down by 250 pounds per acre relative to 2024 and revises the expected cottonseed yield down by about 0.2 tons. In all three District 2 budgets, the costs for stripping, ginning, and all labor were revised upward compared to 2024. These revisions explain the $30-60 increase in variable costs observed in the District 2 budgets.
Table 1. Cotton Revenue and Variable Costs
Table 2 compares the 2024 and 2025 expected returns over variable costs and returns over total costs. The most significant change in 2025 is that the budget for sprinkler irrigated cotton in District 1 no longer shows a positive return over total costs. In all five budgets, we expect returns to cotton production to be less in 2025 than in 2024. However, it is still the case that returns over variable costs are positive. Keep in mind the economic rule of thumb to focus on returns above variable costs if you are already invested in cotton production. If an enterprise can cover its variable costs of production, you are better off producing something and using the revenue you earn to pay at least part of your fixed costs.
Table 2. Expected Returns to Cotton Production
Breakeven Prices in 2025
One important value to look at in an enterprise budget is the commodity’s breakeven price. This is the price at which you can expect revenue to exactly equal costs, given the expected level of production in the budget. Table 3 lists the breakeven prices to cover both the variable costs and the total costs reported in the 2025 budgets. Using dryland cotton in District 2 as an example, the expected yield per acre in the budget is 400 pounds of cotton lint. If a producer achieves this yield, then an acre of dryland cotton breaks even on its variable costs at $0.57/pound and breaks even on its total costs at $0.82/pound. Except for the District 1 dryland budget, the expected price for cotton this year is in between the prices necessary to break even on variable costs and total costs. If cotton yields and cotton prices are close to what we expect, producers should have no trouble breaking even on their variable costs. Breaking even on total costs this year will be more difficult.
Table 3. Expected Breakeven Prices for Cotton Enterprises
What if cotton yields are less than expected this year? Table 4 reports breakeven prices for cotton production in Districts 1 and 2, using a yield that is 25% less than the values in the budgets. Using dryland cotton in District 2 as an example, if the expected yield is decreased to 350 pounds/acre then the breakeven price necessary to cover variable costs increases to $0.80/pound. The values in Table 4 highlight the risk associated with cotton production this year. Yields in 2025 don’t have to decrease much relative to expectations before cotton production results in a loss for producers.
Table 4. Breakeven Prices for Cotton Enterprises, Assuming a 25% Reduction in Yield
Final Comments on the Budgets
Keep in mind that the numbers in these budgets are general guidelines for cotton enterprises in their respective districts and will not represent every operation perfectly. To build a budget that better represents your operation, you can use the following options:
- Producers in District 1 can access a Crop Profitability Analyzer, sponsored by Texas Corn Producers, by clicking here.
- District 2 producers access a similar decision tool on website https://southplainsprofit.tamu.edu/.
- AgriLife Extension Agricultural Economics offers tools to help you build your own budgets on our website.
One other thing to keep in mind is the outlook for both input costs and the 2025 cotton market is not fully formed. In terms of costs, both global trade disruptions and local supply and demand issues could alter the price of fertilizer and chemicals. In the cotton market, it is hard to know what prices will look like until we know how much cotton is planted and what the weather is like during the growing season. There is still plenty of room for both the costs and the returns to cotton production to change. To stay up to date on the latest cotton marketing information, make sure to check out Dr. Robinson’s cotton marketing website. While there, make sure to sign up for his weekly email newsletter as well.
Taking a Break Next Week
Ag Economics on the Plains will take a break next week as we head to Irving, TX for the annual Southern Agricultural Economics Association meetings. We’ll return to our regular posting schedule on February 12.