Project Summaries

12-218  Project Manager: J. M. Reeves

IMPACT OF LAND VALUES ON THE PROFITABILITY OF COTTON PRODUCERS ACROSS THE COTTON BELT

Leah Moore Duzy, USDA-ARS

In 2011, cotton producers in the United States harvested approximately 9.46 million acres of cotton (0.3049 million acres of pima cotton and 9.156 million acres of upland cotton). The average pima cotton yield was 1,340 lb./acre and the average upland cotton yield was 722 lb./acre. Producers received on average $1.64/lb. for pima cotton and $0.913/lb. for upland cotton. Land values vary widely across the Cotton Belt, and differ by whether the cropland is irrigated or non-irrigated. Across all cropland, Arizona had the highest average land values ($9,034/acre) between 2001 and 2011. Kansas had the lowest average land values ($981/acre). Ten states (Alabama, Arizona, California, Florida, Georgia, New Mexico, North Carolina, South Carolina, Tennessee, and Virginia) saw cropland values peak in 2007, 2008, or 2009. The remaining states (Arkansas, Kansas, Louisiana, Mississippi, Missouri, Oklahoma, and Texas) have seen land values continue to rise over the period 2001 to 2011. Irrigated cropland values were the highest in states growing high-value crops (i.e., fruits and vegetables, tree crops) that require irrigation: Arizona, California, Florida, and New Mexico. Cropland rent ranged from $53/acre for irrigated cropland in South Carolina to $356/acre for irrigated cropland in California. Non-irrigated cropland rent ranged from $93/acre in Missouri to $18/acre in New Mexico. The states with high-value crops, such as vegetables and tree crops, had the highest irrigated land rents.

Aside from land ownership and cash rent, producers have other land tenure options, such as flexible cash rent and share rent arrangements. Due to the number of land tenure options, it is difficult to determine the best land tenure option given production costs. Previous literature has focused primarily on specific states and specific types of land tenure arrangements, such as share rent. Gueck et al. (2009) concluded that in the Texas High Plains, in regards to share rent arrangements, the producer and the landlord did not necessarily have the same preferred alternative, and that risk aversion of both the producer and landlord must be considered when finalizing share rent arrangements. For Louisiana rice producers, Deliberto and Salassi (2010) concluded that producers who cash rent increase their net return risk as compared to a share rent arrangement. The objective of this research is to evaluate the impact of agricultural land values and land rent on cotton producer profitability in Arkansas, Georgia, and Texas considering alternative methods of securing land and different production systems.

On average for the U.S., cropland land values have steadily increased over the last ten years, with the exception of 2008 to 2010. Large increases in land values occurred between 2010 and 2012; however, land values have not increased in all states. Agricultural producers are faced with a number of land tenure options aside from land ownership: cash rent, flexible cash rent, and share rent. Across the Cotton Belt, producers are deciding the amount they can afford to pay for rent or if purchasing land is the best option. Focusing on Arkansas, Georgia, and Texas, the preliminary results from this study suggest that, in general, the cash rent and flexible cash rent scenarios provide the highest net returns over variable costs and the lowest net return variability based on coefficient of variation (CV) given the assumptions made in this study. Particularly in Georgia and Texas, which had higher land values than Arkansas, land ownership was the least profitable in the non-irrigated scenarios. Overall, the main conclusion was that every farming operation is different and each producer must make an informed decision for their operation. These preliminary results could be the starting point for producers, but farm specific information should be analyzed before making a decision regarding land tenure.

 

Project Year: 2012
 

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