{"id":3768,"date":"2025-01-29T14:47:16","date_gmt":"2025-01-29T20:47:16","guid":{"rendered":"https:\/\/agrilife.org\/agecon\/?p=3768"},"modified":"2025-01-29T15:00:52","modified_gmt":"2025-01-29T21:00:52","slug":"examining-the-2025-cotton-budgets","status":"publish","type":"post","link":"https:\/\/agrilife.org\/agecon\/examining-the-2025-cotton-budgets\/","title":{"rendered":"Examining the 2025 Cotton Budgets"},"content":{"rendered":"
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Cotton on the Texas A&M AgriLife Farm in Snook, Texas on Sept. 9, 2021. (Sam Craft\/Texas A&M AgriLife Marketing and Communications)<\/p><\/div>\n

The 2025 crop and livestock budgets<\/a> will soon be available on the Texas A&M AgriLife Extension Economics website<\/a>.\u00a0 In today\u2019s post, we break down the District 1 and District 2 cotton budgets and discuss what they imply about cotton production in 2025.<\/p>\n

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Projected Costs and Returns<\/h3>\n

Cotton production costs are still high relative to expected revenue. \u00a0In 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.\u00a0 In District 2, the cotton lint price is $0.02 per pound less and the cottonseed price is $5 per ton less.<\/p>\n

Tables 1 and 2 show how lower expected prices impact expected returns from cotton production this year.\u00a0 Table 1 compares the expected revenue and variable cost values in 2025 to the same values in 2024.\u00a0 Along with lower prices, there are two other important changes in the 2025 budgets to note.\u00a0 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.\u00a0 In all three District 2 budgets, the costs for stripping, ginning, and all labor were revised upward compared to 2024.\u00a0 These revisions explain the $30-60 increase in variable costs observed in the District 2 budgets.<\/p>\n

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Table 1. Cotton Revenue and Variable Costs<\/p><\/div>\n

Table 2 compares the 2024 and 2025 expected returns over variable costs and returns over total costs.\u00a0 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.\u00a0 In all five budgets, we expect returns to cotton production to be less in 2025 than in 2024.\u00a0 However, it is still the case that returns over variable costs are positive.\u00a0 Keep in mind the economic rule of thumb to focus on returns above variable costs if you are already invested in cotton production. \u00a0If 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.<\/p>\n

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

Breakeven Prices in 2025<\/h3>\n

One important value to look at 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 2025 budgets.\u00a0 Using dryland cotton in District 2 as an example, the expected yield per acre in the budget is 400 pounds of cotton lint.\u00a0 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.\u00a0 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.\u00a0 If cotton yields and cotton prices are close to what we expect, producers should have no trouble breaking even on their variable costs.\u00a0 Breaking even on total costs this year will be more difficult.<\/p>\n

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Table 3. Expected Breakeven Prices for Cotton Enterprises<\/p><\/div>\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.\u00a0 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.\u00a0 The values in Table 4 highlight the risk associated with cotton production this year.\u00a0 Yields in 2025 don\u2019t have to decrease much relative to expectations before cotton production results in a loss for producers.<\/p>\n

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

Final Comments on the Budgets<\/h3>\n

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.\u00a0 To build a budget that better represents your operation, you can use the following options:<\/p>\n