|
|
Cotton:
Market Report: Late Planting
B. Goodman, Alabama Extension Economist
Alabama (May 16, 2008) - There
is still a big planting decision to be made by farmers in the
southern half of the state this year, and that is whether to plant
beans or cotton in late June or early July, following wheat. Since
you grow it by the acre, and sell it by the pound, it all depends on
costs and yields. It might be more profitable to grow 80 cent cotton
over $13 soybeans if you can’t make a good bean yield.
Dennis Delaney, Extension Soybean and Conservation Tillage
Agronomist, was just here in my office and we did a little
brainstorming.
-
We estimated that you
would have $200 in beans and $400 in the cotton, more or less. These
are round numbers and if you wanted to run these numbers for your
farm you might want to put a finer point on that pencil, but I think
we are in the ballpark.
-
We kicked around what the yields for double crop cotton and beans --
planted as soon as possible after wheat harvest - would be for
central Alabama. We figured in a “normal” year, we could make 600
pounds of cotton lint or 30 bushels of beans. If it were a “bad”
year, it would be 400 pounds of cotton and 12 bushels of beans, and
800 pounds and 45 bushels for a “good” year.
-
We guessed at the price outlook. I figure there is a 50:50 chance
that the prices we have on the board right now will be what we see
this fall. On beans right now, AFC is offering 75 under Nov futures
(about $13.33 right now), or you could go with a $10 “Put option”
for 25 cents. Either way it looks like a good time to me to lock
this in. The only advantage of the Put is that if you have that
“bad” year in the field and on the market, you don’t end up buying
high beans to put on a cheap contract. But I think the chances of
that are pretty slim anyway.
Cotton
On the cotton side, the supply and demand situation has turned a
little bullish with the latest reports from USDA, but there is still
very little upside potential in my opinion. On the other hand, I
don’t see much on the downside either,
 unless
the economy tanks from high oil prices. Right now December futures
are hovering around 80 cents. We might see 85, might see 70, but
probably not. I don’t think anything outside that range is even a
remote possibility. Even if you pool your cotton, these prices
affect what the co-op can get for your crop, and in turn what they
can pay you, so I think it’s pretty safe to use these numbers for
comparison.
Shake Out
So here is how the numbers shake out. First, we have to assume that
it isn’t possible to have a “bad” year, weather-wise for one crop,
and a “good” year for the other. That seems to me to be a reasonable
assumption. So, if we have a “bad” year for both beans and cotton
you figure to make about $34 more per acre profit (actually, you
lose $35 per acre less) with beans than with cotton. In an “average”
year, you are going to make about $100 more per acre on beans, and
in a “good” year about $130 per acre more.
 On
the price side, however, the picture is not that clear unless you
take advantage of the price now being offered for beans. If soybean
price this fall is low and cotton price at the high end of our
range, it is possible to make more growing cotton. For example,
using my figures if cotton is 80 cents this fall and beans are $10,
you would make $20 more with cotton. But you have to consider also
that if the reverse occurs, if beans are high and cotton is cheap,
you could clear over $150 more per acre with beans. That’s in a bad
year.
In a “good” year, the numbers are larger because yields are higher.
With high bean prices and low cotton prices you could net nearly
$300 per acre more with beans. With low bean prices and high cotton
price, in a “good” year, you make $30 more per acre with cotton. Of
course you have to give probabilities to these prices yourself. I
can’t begin to guess what the likelihood of 80 cent cotton or $14
soybeans is.
Over all the scenarios we considered, Dennis and I believe that on
average, with the yield and prices we used, you would be $87.67
better off with beans. That’s the bottom line.
|
