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Characteristics, Production Costs of US Cotton Farms

27 January 2013

USDA ERS

Agricultural Resource Management Survey (ARMS) data for 2007 highlight the production practices and costs related to the cotton enterprise, as well as the characteristics of US cotton farm operations.

Combining ARMS data with ERS cost-of-cotton production estimates for 2007 provides a 1-year snapshot of cotton producers. For instance, low-cost producers reported higher yields and lower levels of major inputs per planted cotton acre than mid- and high-cost producers in 2007. Southwest producers accounted for a larger share of the smaller US cotton crop in 2007 due to their lower cotton production costs and lack of alternative crops.

Most US cotton is produced on very large diversified farm operations, with cotton often constituting a small share of these operations’ total acres. In contrast, producers with larger cotton enterprises in 2007 relied more on their cotton crop, making them vulnerable to changes in cotton prices or yields. These producers, however, were also more likely to offset greater risks by purchasing revenue insurance on cotton.

Summary

What Is the Issue?

This report provides a 1-year snapshot of US cotton farms in 2007, the latest year for which detailed data were collected from a cotton version of USDA’s Agricultural Resource Management Survey (ARMS). While aggregate estimates provide some clues about cotton production costs and practices and about the characteristics of cotton farm operations and their operators, aggregate data mask diversity among cotton operations.

Our analysis is based on disaggregated data and offers additional perspective to a topic previously discussed in the ERS report, “Characteristics and Production Costs of US Cotton Farms,” which examined 1997 data.

What Did the Study Find?

Cotton farms are not homogeneous. Operators have different characteristics and utilize different production practices. Cotton farm operators raise several varieties of cotton in different locations on enterprises that may vary from less than 200 acres of cotton per farm to more than 1,500 acres of cotton per farm. An enterprise refers to the production of one commodity on a farm, such as cotton, but a farm may include one or more enterprises. For our purposes, enterprise size is measured by the acres of the planted commodity, and farm size is measured by the value of annual gross sales from all commodities.

  • The number of US cotton farms fell by 41 percent between 1997 and 2007, while the average size of cotton farms rose and the share of US cotton production in the Southwest (primarily Texas) increased.
  • The Southwest is the major US cotton production region, accounting for nearly half the cotton acreage and output in 2007. The Southwest also has more cotton farms than any other region. Southwest cotton producers are vulnerable to swings in cotton demand since they generally lack alternative crops and cotton accounts for a higher percentage of their farm production value. These farmers were more likely than cotton farmers in other regions to mitigate their risks by purchasing buy-up or revenue crop insurance.
  • Low-cost producers’ operating and ownership costs averaged $0.44 per pound of cotton, compared with $0.64 per pound for mid-cost producers and $1.02 per pound for high-cost producers. Cotton producers with the lowest operating and ownership costs per pound of cotton had higher cotton yields and lower costs per planted acre than mid- and high-cost cotton producers. The lower per-acre costs stemmed mainly from lower application or usage rates of seed, gasoline, diesel, fertilizer, and labor per planted acre. Low-cost producers made fewer trips across their fields, reducing machinery use and ownership costs per unit. Most low-cost producers in 2007 farmed in the Southwest, where favorable weather boosted their yields.

Characteristics and Production Costs of US Cotton Farms, 2007 / EIB-104 Economic Research Service/USDA

  • Operating costs per acre did not vary signi? cantly by the size of the cotton enterprise. Operators with larger cotton enterprises generally did not have lower costs per planted acre or per pound, despite economies of scale. Many operators with smaller cotton enterprises minimized their ownership costs by relying on custom work to avoid the purchase cost and maintenance of expensive cotton harvesters. Providers of custom work supply their own machinery as well as labor to accomplish a task.
  • Most cotton production takes place on very large farm operations, with half of the cotton production occurring on farms with annual gross sales of $1 million or more. Those farms had the highest average cotton yields per planted acre and the highest average per acre costs. They were more likely to irrigate their cotton acres than smaller cotton farms.
  • Cotton farms vary considerably in the degree of reliance on cotton. Operators with the larger cotton enterprises often had less commodity diversification on their farms. They depended more on cotton compared with operators with smaller cotton enterprises. In contrast, operators of the largest US farms who included cotton in their production mix had more commodity diversification and were less dependent on cotton than operators of smaller cotton farms, since many operators of the largest farms growing cotton had small- to mid-size cotton enterprises.

How Was the Study Conducted?

Cotton producers were grouped by cotton production costs, region, cotton acreage, and typology to examine the variation in characteristics and production practices of US cotton farms in 2007. Farms were ranked by the operating and ownership costs per pound of cotton lint to analyze the factors associated with low and high cotton production costs. We analyzed the characteristics of cotton farms by major cotton production areas to gain insights into regional shifts in cotton production. Cotton farms were grouped by the size of the cotton enterprise (planted acres) and size of the farm (gross farm sales) to determine whether size offers advantages or disadvantages.

The data we analyzed came from ERS’s farm-level production cost estimates for cotton and the cotton version of the 2007 Agricultural Resource Management Survey (ARMS)—a joint effort conducted annually by USDA’s National Agricultural Statistics Service (NASS) and ERS. These two data sources are tightly intertwined since the cotton version of ARMS is one of several data sources used by ERS to compute cotton production cost estimates. Several NASS reports provided secondary data for estimating cotton production costs.

For our purposes, a farm is considered a cotton farm if 1 or more cotton acres were planted with the intention of harvesting the cotton for lint, with cottonseed as a byproduct. Therefore, data from producers who planted cotton with the intention of harvesting the cotton for commercial seed are excluded from our analysis. In addition, yield and cost data per acre are based on planted acres rather than harvested acres.

Background

The cotton plant produces both cotton lint and cottonseed. Cotton lint is a natural fiber that competes with other natural and synthetic fibers in textile production. Cottonseed is fed as whole seed to animals or is separated into three components — hulls, meal, and oil. The hulls and meal are used as feed for livestock, poultry, and fish, or as fertilizer. Cottonseed oil is used as cooking oil and as an ingredient in various food products, especially snack foods.

Cotton lint is more valuable than cottonseed, even though cottonseed accounts for two-thirds of harvested cotton by weight (USDA/ERS, 1992). In 2007, the value of cotton lint accounted for 81 percent of the gross value of cotton production and cottonseed for the remainder, according to ERS production cost accounts. Cotton producers often use their cottonseed as payment to the cotton ginner for transporting their cotton to the gin and for ginning their cotton. In addition, cotton producers may either receive or pay a small additional amount, depending on prices.

U.S. farmers planted 10.8 million acres of cotton in 2007, according to USDA’s National Agricultural Statistics Service (USDA/NASS, 2011). Nearly all cotton acres planted in 2007 were harvested, pushing the yield to 879 pounds per harvested acre, a record that has yet to be broken through the 2012 season. According to NASS, cotton prices averaged $0.61 per pound in 2007, up from $0.48 per pound in the previous year. In 2007, net returns after operating costs averaged $183 per planted cotton acre, while the total cost of production exceeded the gross value of production by an average of $32 per planted acre. Net returns per acre for cotton in 2007 were the highest since 2003.

In the United States, cotton is a major field crop that generates signi? cant cash receipts for farm producers. Only corn, soybeans, wheat, and greenhouse products account for more crop cash receipts than cotton. From 2005 to 2007, cotton accounted for 2.4 percent of total cash receipts from agricultural commodities and for nearly 5 percent of annual crop cash receipts (USDA/ERS, 2011a). In 2007, cotton was planted on 1.2 percent of U.S. farmland and on 2.5 percent of farmland in cotton-producing States, according to NASS data.

Understanding the trends that faced cotton producers may help put the data in this report in perspective. According to the 2007 and 1997 Censuses of Agriculture, 18,591 farms grew cotton in 2007, down 41 percent from 1997. Planted U.S. cotton acreage trended downward slightly between 1997 and 2007. Texas accounted for 43 percent of U.S. cotton production in 2007, while Arkansas, Georgia, California, and Mississippi each accounted for 7-10 percent.

As a major cotton producer and the leading cotton exporter, the United States ranks third in production behind China and India. The share of the U.S. cotton crop exported has grown rapidly as domestic mill use has declined. By 2007, U.S. cotton exports had grown to 13.6 million 480-pound bales and accounted for 75 percent of U.S. cotton disappearance. A decade earlier, the United States exported 7.5 million bales of cotton, which accounted for 40 percent of U.S. cotton disappearance. As U.S. cotton exports trended upward, domestic mill use declined to 4.6 million 480-pound bales in 2007 after peaking in 1997 at 11.3 million bales. Domestic mill use fell as apparel imports rose amid lower trade barriers and lower labor costs abroad (Meyer et al., 2007).

As higher shares of the U.S. cotton crop are exported, the economic wellbeing of U.S. cotton producers becomes linked more closely to changes in foreign demand for cotton. Trade policies, exchange rates, the global economy, and cotton production and prices in foreign countries all in? uence foreign demand for U.S. cotton. Cotton producers may face increased market risks as a result of greater fluctuations in annual cotton exports than in annual domestic mill use. Since China is a major importer of U.S cotton, changes in China’s cotton demand will have significant impacts on U.S. cotton producers.

Further Reading

You can view the full report by clicking here.

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