{"id":3329,"date":"2024-01-31T16:46:19","date_gmt":"2024-01-31T22:46:19","guid":{"rendered":"https:\/\/agrilife.org\/agecon\/?p=3329"},"modified":"2024-01-31T16:46:19","modified_gmt":"2024-01-31T22:46:19","slug":"high-plains-ag-week-1-31-2024-a-look-at-the-2024-cotton-budgets","status":"publish","type":"post","link":"https:\/\/agrilife.org\/agecon\/high-plains-ag-week-1-31-2024-a-look-at-the-2024-cotton-budgets\/","title":{"rendered":"High Plains Ag Week – 1\/31\/2024 – A Look at the 2024 Cotton Budgets"},"content":{"rendered":"
\"Picture

Aug. 9, 2022 in College Station, Texas. (Sam Craft\/Texas A&M AgriLife Marketing and Communications)<\/p><\/div>\n

The 2024 crop and livestock budgets<\/a> will soon be available for all districts on the Texas A&M AgriLife Extension Agricultural Economics<\/a> website.\u00a0 In this post, we look at the numbers in the budgets for cotton production in Districts 1 and 2. <\/p>\n

 <\/p>\n

<\/h2>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

What We\u2019re Reading<\/h2>\n

2024 wheat prices speculated to be lower than ’23<\/a> \u2013 Southwest Farm Press<\/p>\n

More cotton, lower prices in 2024?<\/a> \u2013 Southwest Farm Press<\/p>\n

Ken Leg\u00e9: new Lubbock Extension cotton specialist<\/a> \u2013 Southwest Farm Press<\/p>\n

What to consider when making ARC\/PLC election<\/a> \u2013 Southwest Farm Press<\/p>\n

Cotton Crop Insurance: Unveiling Regional Differences in Projected and Harvest Prices<\/a> \u2013 Southern Ag Today<\/p>\n

2024 Winter Wheat Production Prospects<\/a> \u2013 Southern Ag Today<\/p>\n

Projected Costs and Returns in 2024<\/h2>\n

Table 1 compares per-acre revenue and variable costs\u00a0 in the 2023 and 2024 Texas A&M AgriLife Extension cotton budgets for Districts 1 and 2.\u00a0 Based on these numbers, producers can expect both lower revenues and lower variable costs this year relative to 2023.\u00a0 Revenues decrease because of lower expected prices for both cotton lint and cottonseed.\u00a0 Variable costs decrease largely due to lower expected fertilizer and energy costs.\u00a0 For more on how fertilizer and energy costs might change in 2024, check out this post<\/a>.<\/p>\n

\"Comparison

Table 1. Cotton Revenue and Variable Costs in the 2023 and 2024 Extension Budgets<\/p><\/div>\n

What do lower revenues and variable costs imply for cotton production this year?\u00a0 Table 2 compares the expected per-acre returns above variable costs and returns above total costs for cotton enterprises in Districts 1 and 2.\u00a0 In most cases, expected returns are less in 2024 relative to 2023 but still positive.<\/p>\n

\"Comparison

Table 2. Expected Returns to Cotton Production<\/p><\/div>\n

There are four negative values to highlight in Table 2.\u00a0 The 2024 returns above total costs for dryland production in both districts are negative, as are the returns above total costs for pivot irrigated cotton in District 2 and the returns above variable costs for dryland cotton in District 1.\u00a0 Does this mean that producers should avoid putting resources into these enterprises this year?<\/p>\n

Keep in mind that total costs for any enterprise include fixed costs that must be paid even when nothing is planted and\/or harvested.\u00a0 The rule of thumb for economic decision making is to focus on returns above variable costs if you have already incurred fixed costs.\u00a0 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. \u00a0For dryland and pivot irrigated cotton in District 2, returns above variable costs are positive so it would make economic sense to plant cotton if a producer is already invested in these enterprises.\u00a0 On the other hand, it might not make economic sense to plant dryland cotton in District 1 this year unless expectations regarding commodity prices or production costs change significantly.<\/p>\n

Breakeven Prices for 2024<\/h2>\n

One important value to be aware of in an enterprise budget is the commodity\u2019s breakeven price.\u00a0 This is the price at which you can expect revenue to exactly equal costs, given the expected level of production in the budget.\u00a0 Table 3 lists the breakeven prices to cover both the variable costs and the total costs reported in the 2024 budgets.\u00a0 Using pivot irrigated cotton in District 2 as an example, the expected yield per acre in the budget is 1000 lbs. of cotton lint.\u00a0 If this yield is achieved, then an acre of pivot irrigated cotton will break even on its variable costs at a price of $0.53\/lb. and will break even on its total costs at a price of $0.74\/lb.<\/p>\n

\"2024

Table 3. Expected Breakeven Prices for Cotton Enterprises<\/p><\/div>\n

Except for dryland cotton in District 1, cotton enterprises in Districts 1 and 2 should have no trouble breaking even on their variable costs in 2024. \u00a0Breaking even on total costs will be more difficult this year; however, sprinkler irrigated cotton and District 1 and drip irrigated cotton in District 2 should be able to do so. \u00a0The prices necessary to break even on total costs for dryland and pivot irrigated cotton in District 2 are just barely above the expected cotton price listed in the budgets.\u00a0 If cotton prices are higher than expected this year, or if producers can take advantage of marketing opportunities to secure a higher-than-expected price, these enterprises could end up producing a positive return over total costs this year.<\/p>\n

What if cotton yields are less than expected this year?\u00a0 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. \u00a0Using pivot irrigated cotton in District 2 as an example, if the expected yield is decreased to 750\/lbs. then the breakeven price necessary to cover variable costs increases to $0.71.<\/p>\n

\"Breakeven

Table 4. Breakeven Prices for Cotton Enterprises, Assuming a 25% Reduction in Yield<\/p><\/div>\n

The values in Table 4 highlight the risk associated with cotton production this year.\u00a0 If yields are much lower than expected, then cotton enterprises in Districts 1 and 2 are unlikely to break even on their total costs and may barely break even on their variable costs.\u00a0 In the coming weeks, we will discuss programs that producers can use to mitigate their production and marketing risk in this blog.<\/p>\n

Some Final Comments on the Budgets<\/h2>\n

Keep in mind that the numbers in these budgets are general guidelines and will not represent every operation perfectly.\u00a0 To build a budget that better represents your operation, you can use the following options:<\/p>\n