Costs and Returns for Cotton, Corn, and Soybeans
in the Brown Loam Area of Mississippi, 1995

Published by the Office of Agricultural Communications, Division of Agriculture, Forestry, and Veterinary Medicine, Mississippi State University. Edited by Keith H. Remy, Senior Publications Editor.

Acknowledgments

The authors thank the many producers who cooperated by providing the information used as the basis for this study. The generous contribution of their time is greatly appreciated. Also to be thanked are the enumerators who collected the data from the producers. As always, they exhibited a high level of professionalism in their work. Numerous people with the Mississippi Agricultural Statistics Service are to be thanked for their efforts in helping to carry out the survey and providing expert guidance. Additionally, the work-study students in the Department of Agricultural Economics, who were responsible for computerizing the data, are highly appreciated. Without a cooperative group effort, studies such as this one could not be conducted.

The authors also express their gratitude to the reviewers of the manuscript, Dr. Tom Jones, Dr. John Robinson, and Dr. Patrick Gerard for providing valuable comments. Any errors are the responsibility of the authors.

This research was conducted as part of project MIS-0128 which is supported by the Mississippi State Tax Commission.

Information about economic costs and returns of agricultural commodities produced in Mississippi is important to producers, lenders, agricultural economists, researchers, extension personnel, policy makers, and others involved in agriculture.

A previous bulletin reported on costs and returns for major crops in the Delta Area of Mississippi in 1994 (Spurlock and Gillis). This bulletin presents revenue, cost of production, and net revenue estimates for cotton, corn, and soybean crops that were produced in the Brown Loam Area of Mississippi during 1995.

First, the methods and procedures used to develop the estimates are discussed. Then the results of the study are presented.

Methods and Procedures

The Mississippi Agricultural Statistics Service (MASS) developed a stratified random sample of farms within the Brown Loam Area of Mississippi that produced either cotton, corn, or soybeans in 1995. After contacting the owner or manager of the farm operation in the fall of 1995, an enumerator employed by MASS randomly selected a field on the chosen farm and collected information about the cultural practices used to produce the crop on that field. Information included types of preplant tillage operations, planting practices, fertilizer and pesticide applications, and harvesting operations. After the crop was harvested, the enumerator contacted the producer again to obtain the crop yield on the sampled field and the whole farm.

Upon completion of the survey, MASS developed two numbers, called "expansion factors," for each sampled field so that the sample information related to the field could be expanded to represent the population of crop farms within the region. These expansion factors were used to compute weighted sample averages of costs and returns rather than just unweighted sample averages.

The first expansion factor was used to expand information pertaining to the sampled field to the farm level. It was computed as the number of acres of the crop on the farm divided by the number of acres of the crop in the sampled field.The second expansion factor was used to expand this farm-level information about the crop to the whole region. Each crop in each strata had an expansion factor of this type. It was computed as the total number of farm operations in each strata divided by the sample size in that strata.

Estimating Economic Costs and Returns

The information about production practices from each sampled field was entered into data files by using the Mississippi State Budget Generator (MSBG) program. This computer program uses information about farm machinery, operating inputs, and prices to convert production practice information into budgetary information (costs and returns). Essentially, the program estimates the variable and fixed costs per acre of each field operation. These field operation costs are then organized into various useful budget output formats.

Variable Cost Estimation. Variable costs are those which a manager has control over in the short run and which will increase as total planned production is increased. Variable cost categories for machinery are defined as diesel fuel, repairs and maintenance, and labor. Powered machines (tractors and combines, for instance) consume diesel fuel at a specified rate per hour of operation. This consumption rate is multiplied by the machine's performance rate (the time it takes to complete a field operation on one acre) to obtain the fuel consumption per acre. This quantity is multiplied by the diesel fuel price (estimated to be $0.67 per gallon) to obtain the fuel cost per acre.

An average hourly cost for repairs and maintenance (R&M) is estimated by dividing the machine's estimated total lifetime R&M expense (specified as a percent of the machine's current list price, assuming the machine is new, not used) by the machine's estimated total operational life (in hours). This amount is then multiplied by the machine's performance rate to obtain the R&M cost per acre.

Depending on the type of field operation, the type of labor required may be the machine operator alone or may also include nonoperator labor. Labor use for each type of labor associated with the field operation (hours per acre) is multiplied by the labor cost per hour (the going wage rate plus employer contributions for perks and benefits, estimated to be $7.10 per hour for operator labor and $5.70 per hour for nonoperator labor) to obtain the labor cost per acre. A category for overhead labor (or nonfieldwork labor) was established to account for labor expenses that are not directly related to fieldwork.

Cox (1982) conducted a labor study and concluded that overhead labor expenses could be estimated as a percent of operator labor for specific crop enterprises. The estimation method used by Cox resulted in different overhead labor rates for different crops. The rates estimated by Cox and used in this study were 80, 90, and 90 percent for cotton, corn, and soybeans, respectively.

Other variable cost categories are defined for purchased operating inputs such as fertilizer and pesticides. The quantity per acre of each operating input is multiplied by its price to obtain its cost per acre. Other variable cost items are ginning cotton, hauling the crop to a storage or handling facility, and hiring custom work. Again, the quantity per acre is multiplied by the charge or fee per unit to obtain the cost per acre.

Finally, an interest charge is applied to each variable cost item to account for the opportunity cost of using operating capital to produce crops instead of some alternative investment, which could include paying off current debt. The interest cost is estimated by multiplying a short-term monthly interest rate on borrowed funds (estimated to be 0.845 percent per month in 1995) by the cost per acre for each month between the time that the field operation is performed and the harvest month.

Fixed Cost Estimation. The ownership costs of machines need to be estimated on an annual basis to properly allocate the original investment capital to one production period. One cost is the loss in value of a machine during the year; this cost is termed depreciation. There is also an opportunity cost of for the capital invested in a durable machine; an interest charge is estimated to account for this cost. Technically, these two ownership costs are often categorized as noncash fixed costs because their values do not depend on the level of production. However, the methods used in this study to estimate depreciation per acre and interest on average investment capital per acre are dependent on machinery use per acre. To be consistent with standard budgeting procedures, these costs are termed machinery fixed costs in this study.

Depreciation per hour is calculated by dividing the machine's current list price (assuming it is new, not used) less its salvage value by its total hours of operational life. In the present study, a machine's salvage value is specified to be zero, reflecting the assumption that a machine will be placed in use for its whole operational life, at which time it will have no remaining market value. Hourly depreciation is then multiplied by the machine's performance rate to obtain depreciation per acre.

Interest on average investment capital is first computed for the year by multiplying the average investment (one-half of the sum of its new list price and its salvage value, which again is assumed to be zero) by an annual interest rate applicable for intermediate-term debt (estimated to be 10.15 percent per year in 1995). This amount is divided by the machine's estimated hours of annual use to obtain the interest cost per hour. This hourly interest cost is then multiplied by the machine's performance rate to obtain the interest cost per acre.

Another fixed cost category involves land, which may be a cash cost for rented land or a noncash opportunity cost in the case of owned land. In this study, the cash rental rate per acre is used as an estimate of the annual cost of land. In the event that the producer rented land to produce the crop in question, the cash rental rate was elicited. For producers who did not cash-rent land, the cash rental rate had to be estimated. The simple average of the rental rates reported by the cash renters was assigned to those producers who did not report having a rental charge.

Other fixed cost categories that may need to be allocated to crop enterprises are general farm overhead and a management charge. There was no reliable method for estimating these types of costs with the available data; therefore, these costs were not included in the analysis.

Revenue Estimation. Revenue per acre was estimated by multiplying the crop yield by the statewide average market price received by farmers (MASS). Market prices used were: $0.738 per pound of cotton lint, $0.0515 per pound of cotton seed, $3.00 per bushel of corn, and $6.80 per bushel of soybeans. Cotton seed yield was assumed to be 1.55 pounds of seed per pound of lint. The sampling procedure did not request information about government program participation or deficiency payments received. Thus, the net revenue estimates do not account for any government payments that may have been received. Also, the cost estimates do not account for any land that was set aside as part of the requirements for participating in government programs. Net revenue was then computed as the difference between total revenue and total specified cost.

Computing Weighted Means and Standard Deviations

The data for machinery prices, performance rates, operational hours, and operating input and crop prices were the same for all producers; only the individual production practices and crop yields were different across sampled fields. After the budgetary information was estimated within the MSBG framework and the land rental rate was estimated where necessary, the weighted average (mean) of each item was computed as follows. For each sampled field, the number of acres in the field was multiplied by the product of the two expansion factors to obtain the total number of acres represented by the sampled field. These expanded acre values were summed over the whole sample to obtain the total acres represented by the sample. The weight for each sample unit was obtained by dividing its expanded acres by the total acres represented. These weights were used to compute weighted means and weighted standard deviations for crop yields, revenues, selected cost categories, and net returns.

Results

Cotton

In Table 1, the results show that the average market revenue (which does not include any government payments) for cotton producers in the Brown Loam Area in 1995 was about $400 per acre, the average total specified cost of production was about $514 per acre, and the average net revenue was about -$114 per acre. Twenty-four of the 32 cotton producers surveyed (75%) had negative net revenues. As evidenced by the standard deviations and the minimum and maximum per-acre values, there is a substantial amount of variation in revenues and production costs across farms.

The insecticide expenditure (which did not include chemical application costs) was the largest variable cost item. Hauling and ginning charges and fertilizer expenses were also large cost categories, followed by repairs and maintenance and herbicides. The total labor expense was estimated to average about $36 per acre. Other information about the sampled farms in the Brown Loam Area is presented in Table 2. Based on data obtained from the 32 cotton producers in the survey, the unweighted mean size of farm operation in the Brown Loam was more than 1,300 acres, with about 900 acres in cropland. On average, 554 acres of cotton were produced on the sampled farms. The weighted mean cotton yield was almost 490 pounds per acre.

Of the 32 cotton producers surveyed, two indicated that their crops were produced on Class I soils, 28 on Class II soils, and 2 on Class III soils. Fifteen producers performed soil tests and 22 planned to lime in the future. The modal lime application was 1 ton per acre every 3 years. Thirty producers planted solid cotton and two producers planted skip-row. The size of equipment ranged from 4-row to 8-row.

Corn

In Table 3, the results for corn production show that the average market revenue (excluding government payments) was about $331 per acre, the average total specified cost of production was about $257 per acre, and the average net revenue was about $74 per acre. Fifteen of the 48 corn producers surveyed (31%) had negative net revenues. The fertilizer category was by far the largest variable cost item. Other important cost categories were herbicides, seed, and repairs and maintenance. The total labor expense was estimated to be about $12 per acre.

Other information about the 48 sampled farms that produced corn is presented in Table 4. The unweighted mean farm size was almost 1,600 acres, which was higher than that of the sampled cotton producers. More than one-half of the cropland acres operated were rented. On average, these producers had about 165 acres of corn. The weighted mean corn yield was 110 bushels per acre.Six of the 48 producers indicated that their crops were produced on Class I soils, 31 on Class II soils, 8 on Class III soils, and 3 on Class IV soils. Twenty-two corn producers performed soil tests and 31 planned to lime in the future. The modal lime application was 1 ton per acre every 3 years. Thirty-five producers planted 38-inch rows. The size of equipment ranged from 4-row to 10-row.

Soybeans

In Table 5, the results for soybean production show that the average revenue was about $190 per acre, the average total specified cost of production was about $156 per acre, and the average net revenue was about $34 per acre. Sixteen of the 37 producers surveyed (43%) had negative net revenues. The herbicide category was the largest variable cost item, followed by repairs and maintenance and fertilizer. The total labor expense was estimated to be about $10 per acre.

Other information about the 37 sampled farms that produced soybeans is presented in Table 6. The unweighted mean farm size was almost 1,200 acres, of which about 1,000 was in cropland. On average, there were about 278 acres of soybeans. The weighted mean soybean yield was 28 bushels per acre.

Six of the 37 soybean producers indicated that their crops were produced on Class I soils, 27 on Class II soils, and four on Class III soils. Ten soybean producers performed soil tests and 21 planned to lime in the future. The modal lime application was 1 ton per acre every 3 years. There was no dominant row spacing; 10 producers reported that they drilled the soybeans, 10 had narrow rows, 12 had wide rows, 3 had 30-inch rows, and 2 broadcast the soybeans. Only five producers in the survey doublecropped. The size of equipment ranged from 4-row to 16-row.

Conclusions

Based on the statistical results from the producer surveys, the least expensive crop to produce on a per-acre basis was soybeans, followed by corn and cotton. Without knowledge of government payments and costs for management and general farm overhead, corn had the highest net revenue, followed by soybeans and cotton. In 1995, in the Brown Loam Area, average market revenue was not sufficient to cover average cotton production costs. Cotton producers need to obtain higher yields than they did in 1995 to show positive returns to production resources. However, government payments, which were not estimated in this study, could have been available to help cover production costs. In addition to government payments as a source of revenue, two cost categories (management and general farm overhead) need to be estimated to obtain an estimate of total revenues less total costs. This net revenue could properly be labeled "economic profit" since all sources of revenues and costs would be included.

References

Cox, Laura R. 1982. Overhead Labor Cost in the Delta Area of Mississippi. Unpublished M.S. Thesis, Department of Agricultural Economics, Mississippi State University. December 1982.

Mississippi Agricultural Statistics Service. 1995. 1995 Mississippi Agricultural Statistics, Supplement 30. Jackson, MS.

Spurlock, Stan R., and David H. Laughlin. 1992. Mississippi State Budget Generator User's Guide, Version 3.0. Agricultural Economics Technical Publication No. 88. July 1992.

Spurlock, Stan R., and W. Gail Gillis. 1996. Costs and Returns for Cotton, Rice, and Soybeans in the Delta Area of Mississippi, 1994. Mississippi Agricultural and Forestry Experiment Station Bulletin 1050. July 1996.

Table 1. Estimated cost and return statistics for cotton, survey of 32 producers, Brown Loam Area of Mississippi, 1995.
Item	Mean	Std Dev	Minimum	Maximum
	------------$/acre-------------
Revenue Items:
Lint Revenue	361.02	136.03	47.97	553.50
Seed Revenue	39.05	14.71	5.19	59.87
Total Market Revenue	400.07	150.75	53.16	613.37
Variable Cost Items:
Insecticides	91.88	39.96	7.75	190.37
Haul and Gin	56.50	18.46	2.45	100.00
Fertilizer	55.37	23.88	14.30	115.79
Repairs & Maintenance	41.21	7.16	6.22	53.07
Herbicides	30.31	11.52	0.60	67.93
Operator Labor	17.72	2.83	4.53	24.16
Overhead Labor	15.24	2.44	3.90	20.78
Interest on Op. Capital	11.99	2.97	7.49	18.29
Diesel Fuel	11.91	2.79	3.42	20.74
Seed	10.34	2.77	6.80	20.40
Harvest Aids	9.55	4.71	0.00	42.24
Growth Regulators	6.96	9.38	0.00	32.88
Custom Charges	5.03	10.35	0.00	79.70
Fungicides	3.93	7.47	0.00	40.48
Services/Fees	3.44	2.89	0.00	8.00
Hand Labor	2.67	0.83	0.79	4.40
Total Variable Cost	374.05	67.28	236.71	474.84
Machinery Fixed Cost	86.39	14.13	14.77	109.96
Variable + Fixed Cost	460.43	71.73	276.89	580.64
Land Rent	53.29	12.95	25.00	85.00
Total Specified Cost	513.73	68.71	328.76	635.64
Net Revenue	-113.65	157.98	-378.50	118.56

Table 2. Farm characteristics of cotton producers, survey of 32 producers, Brown Loam Area of Mississippi, 1995.
Item	Mean	Std Dev	Minimum	Maximum
Acres in Operation	1,342	1,322	100	5,500
Cropland Acres Operated	898	892	11	3,820
Cropland Acres Owned	475	827	0	3,600
Cropland Acres Rented	443	420	0	1,600
Cotton Acres Operated	554	506	11	2,200
Cotton Acres Owned	250	416	0	1,600
Cotton Acres Rented	304	294	0	1,300
Cotton Field Size (acres)	56	70	7	370
Cotton Yield (lb/acre)	489	184	65	750

Table 3. Estimated cost and return statistics for corn, survey of 48 producers, Brown Loam Area of Mississippi, 1995.
Item	Mean	Std Dev	Minimum	Maximum
	- - - - - - $/acre - - - - - -
Market Revenue	330.94	73.52	75.00	459.00
Variable Cost Items:
Fertilizer	77.29	25.64	7.15	126.97
Herbicides	20.07	12.04	0.00	53.86
Seed	18.81	2.60	9.43	24.60
Repairs & Maintenance	18.35	7.38	0.00	33.05
Haul	13.18	7.20	0.00	22.40
Custom Charges	11.75	16.00	0.00	61.75
Interest on Op. Capital	8.03	1.99	3.65	11.76
Operator Labor	6.03	2.13	0.00	15.41
Overhead Labor	5.43	1.92	0.00	13.87
Diesel Fuel	5.07	1.70	0.00	11.68
Hand Labor	1.06	1.46	0.00	23.81
Insecticides	0.39	2.13	0.00	12.04
Total Variable Cost	185.45	35.13	90.49	247.13
Machinery Fixed Cost	36.77	14.05	0.00	95.09
Variable + Fixed Cost	222.22	38.24	129.26	292.97
Land Rent	35.23	7.18	10.00	75.00
Total Specified Cost	257.46	39.45	166.00	330.14
Net Revenue	73.49	85.64	-169.79	249.67

Table 4. Farm characteristics of corn producers, survey of 48 producers, Brown Loam Area of Mississippi, 1995.
Item	Mean	Std Dev	Minimum	Maximum
Acres in Operation	1,583	1,438	50	6,000
Cropland Acres Operated	1,014	1,230	3	6,000
Cropland Acres Owned	486	903	0	4,500
Cropland Acres Rented	603	738	0	3,500
Corn Acres Operated	165	198	3	1,000
Corn Acres Owned	56	92	0	400
Corn Acres Rented	109	169	0	750
Corn Field Size (acres)	40	29	3	110
Corn Yield (bu/acre)	110	25	25	153

Table 5. Estimated cost and return statistics for soybeans, survey of 37 producers, Brown Loam Area of Mississippi, 1995.
Item	Mean	Std Dev	Minimum	Maximum
	- - - - - - - - -$/acre- - - - - - - - -
Revenue	189.60	52.58	68.00	258.40
Variable Cost Items:
Herbicides	29.79	11.08	5.61	49.87
Repairs & Maintenance	15.42	2.70	4.58	20.85
Fertilizer	14.98	12.33	0.00	52.24
Seed	8.98	1.87	5.10	20.40
Operator Labor	4.82	1.57	2.07	10.07
Overhead Labor	4.33	1.41	1.87	9.07
Haul	4.27	1.17	0.00	6.40
Diesel Fuel	3.97	1.29	1.65	9.39
Interest on Op. Capital	3.62	1.19	1.59	6.21
Custom Charges	3.17	6.63	0.00	34.20
Hand Labor	0.99	0.46	0.00	2.54
Total Variable Cost	94.36	21.33	49.18	136.05
Machinery Fixed Cost	30.55	5.89	10.51	53.31
Variable + Fixed Cost	124.91	24.45	62.83	178.08
Land Rent	31.04	5.57	20.00	40.00
Total Specified Cost	155.95	24.10	90.67	213.34
Net Revenue	33.65	56.86	-108.73	150.36

Table 6. Farm characteristics of soybean producers, survey of 37 producers, Brown Loam Area of Mississippi, 1995.
Item	Mean	Std Dev	Minimum	Maximum
Acres in Operation	1,192	1,242	40	6,000
Cropland Acres Operated	1,005	1,271	40	6,000
Cropland Acres Owned	428	761	0	4,500
Cropland Acres Rented	580	822	0	3,500
Soybean Acres Operated	278	385	29	2,000
Soybean Acres Owned	111	176	0	1,000
Soybean Acres Rented	166	262	0	1,000
Soybean Field Size (acres)	52	56	7	280
Soybean Yield (bu/acre)	28	8	10	38