Project Summaries

10-779  Project Manager: J. M. Reeves

RISK MANAGEMENT-- STRATEGIES FOR CONTROLLING INPUT COSTS OF COTTON PRODUCERS

Gregory Ibendahl, Mississippi State University

The overall objective of this study is to develop a series of publications looking at strategies farmers can use to help control input costs when producing cotton.

The main output this year was a paper about cotton picker machinery costs when comparing the on-board module picker to the conventional (i.e., boll buggy and module builder) picker system. When a cotton grower with a conventional system might want to replace that system with an on-board module system was evaluated. The problem with analyzing this decision is that a producer with a conventional system is really replacing three assets with one. It would rarely be the case where all three of the assets (harvester, boll buggy, module builder) in the conventional system were at the same state of repair.

It was found that when analyzing this type of decision, it is important to consider the age of the supporting assets. In this case, the ages of the boll buggy and module builder are important considerations. Younger supporting assets (i.e., module builder and boll buggy) will delay the replacement decision while older supporting assets will accelerate the replacement decision. In some cases, the replacement age might be beyond the normal self-replacement age.

This paper also showed the relative importance of a defender's (i.e., the current system already in place) decrease in asset value versus its current value. The decision to replace is encouraged if a defender is dropping in value quickly while the decision to not replace is encouraged if a defender is not changing in value quickly. This is particularly true for picker replacement decision where the supporting assets may already have a very small value even if they are working well. Another factor to consider as well is the slack resources on the farm. If a farm already has the tractors available and the labor is already fixed, then the analysis changes. Perhaps now the conventional system is not at a disadvantage. The fact that a farmer can still buy a conventional picker indicates the costs to operate the supporting assets are small for some farmers.

Also, as part of this study, eight years of historical costs and returns for cotton production in Mississippi were evaluated. There are two publications to be developed from this data. The first is a straightforward analysis of cost of production and returns for the different areas of the state over these eight years. The second is a publication comparing the costs and returns of dryland cotton to irrigated cotton. The one surprising result is that irrigated cotton was less profitable than dryland cotton in four of the eight years analyzed. However, in the years where irrigated cotton was better, it was often much more profitable than dryland cotton.

 

Project Year: 2012
 

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