Cotton Enterprise Budget Database

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1 Cotton Enterprise Budget Database Developed by: Lawrence Falconer, Mississippi State University Extension Service and Dr. Jeanne Reeves, Cotton, Incorporated Sponsored by: Cotton, Incorporated Dr. Jeanne Reeves, Project Supervisor Introduction The Cotton Enterprise Budget Database is designed to facilitate access to enterprise budgets for major upland cotton producing states. The enterprise budgets in the database are MicroSoft Excel spreadsheets. These budgets are adapted from enterprise budgets developed by Cooperative Extension Services in the various states. These budgets are prepared to provide general information for several different uses. They provide information concerning general levels of costs and returns which will need to be adjusted for specific situations. Producers almost certainly use different practices in their own operations. If significantly different types and quantities of operating inputs are to be used, then the budgeted expenses should be changed to more accurately reflect actual input usage. The spreadsheets in the database are presented in a standardized residual return format and can be easily modified by the user to fit their particular situation. Users are cautioned that returns presented are labeled "Returns Above Specified Expenses." Unless specifically listed, estimated costs for land, management, and general farm overhead are not included in these budgets. "Returns Above Direct Expenses" should be used in making short-term planning decisions. This would be a one-year short-run decision. Decisions beyond one year, or long-run decisions, should be based on "Returns Above Specified Expenses." Net returns are generally considered to be the amount left after subtracting all costs from all incomes for a particular enterprise. In these budgets, RETURNS ABOVE DIRECT EXPENSES and RETURNS ABOVE TOTAL SPECIFIED EXPENSES are used as a proxy for the economic concepts of net returns above variable costs and net returns above variable plus fixed costs, respectively. In most of the budgets some items are intentionally left out of these calculations, i.e., costs for land or land rent, taxes, insurance premiums, general farm overhead, and expected incomes from government payments or insurance payments. These costs and incomes vary widely among farms and farm situations so as to make routine calculation for representative situations impractical. These items should, however, be considered by each producer and factored into the final budget each producer develops for his own situation 1. The budgets are partitioned into three sections. The first deals with returns to the enterprise based on expected yields and prices. The second section deals with direct expenses related to the enterprise based on the production technology represented by the budget. The direct costs include price and use of items such as fertilizer, pesticides, seed and fuel as well as labor and repairs and maintenance which are cash expenses in most instances. The last section deals with fixed expenses that many times include either non-cash expenses such as depreciation or a capital recovery factor for fixed assets used in the enterprise as well as some cash expenses such as overhead allocations if listed. 1 This discussion of the budget format and interpretation of information presented in the budgets can be found in Mississippi State University Department of Agricultural Economics Budget Reports through

2 Entering Data Upon opening the desired budget in Excel, the user is able to enter values into any cell with blue text without worrying about having to modify any existing formulas in the worksheet. The user does need to make sure that the estimates entered are consistent with the units for price and quantity listed on that particular row. The budget worksheets also allow the user to enter share percentages for the landlord to estimate share returns if the user needs to examine either crop share or cash lease alternatives. Estimated costs and returns per acre Cotton, 8R 38" solid, conservation tillage B2RF variety, Delta Area, Mississippi, 2014 Landlord Tenant ITEM UNIT PRICE QUANTITY Total Amount Share % Share Share INCOME Cotton Lint lb $ $ % $ $ Cotton Seed lb $ $ % $ $ TOTAL INCOME $ $ $ Figure 1. Revenue Section Example. An example of changing the values in the revenue section is shown below in Figure 2. In this case, the user wants to lower the expected cotton price from $0.79 per pound to $0.68 per pound, increase the yield to 1,200 pound per acre, and change the units and price on the Cotton Seed line from pounds to tons. In addition, the user would like to develop a budget for the landlord based on a 25% share of revenue, seed cost, ginning and hauling cost, fertilizer cost, herbicide cost and insecticide cost. In this example, the user would enter 25% on both the cotton lint and cotton seed rows resulting in estimated gross income of $ per acre to the landlord and $ per acre to the tenant. Estimated costs and returns per acre Cotton, 8R 38" solid, conservation tillage B2RF variety, Delta Area, Mississippi, 2014 Landlord Tenant ITEM UNIT PRICE QUANTITY Total Amount Share % Share Share INCOME Cotton Lint lb $ $ % $ $ Cotton Seed tons $ $ % $ $ TOTAL INCOME $ 1, $ $ Figure 2. Example of Changing Values in the Revenue Section to Accommodate Different Prices, Yields and Units and Land Tenure Arrangements.

3 The values shown in Figure 3 show the direct expenses detailed in the original budget spreadsheet. To complete the modifications laid out in previous discussion the user will need to change the quantity on the Gin & Haul line to reflect the increased yield estimate since the ginning and hauling charge is based on pounds of lint per acre as well as the share percentage for the seed cost, ginning and hauling cost, fertilizer cost, herbicide cost and insecticide cost. DIRECT EXPENSES GINNING Gin & Haul lb $ $ % $ $ FERTILIZERS Potash (60% K2O) cwt $ $ % $ $ UAN (32% N) cwt $ $ % $ $ HERBICIDES Clarity pt $ $ % $ $ 5.10 Glyphosate 3lbs a.e oz $ $ % $ $ Gramonone SL 2.0 oz $ $ % $ $ Reflex 2LC pt $ $ % $ $ 7.51 Cotoran 4L pt $ $ % $ $ Dual Magnum pt $ $ % $ $ Diuron 4L pt $ $ % $ $ 5.58 INSECTICIDES Acephate 90% lb $ $ % $ $ Centric 40WG oz $ $ % $ $ 9.40 Karate Z oz $ $ % $ $ 1.37 Bidrin 8WM oz $ $ % $ $ 1.96 Incidental Pest Trt acre $ $ % $ $ SEED/PLANTS Cotton Seed B2RF thous $ $ % $ $ TECHNOLOGY FEE B2RF Cot Tech Fee thous $ $ % $ $ INTEREST ON OP. CAP. acre $ $ % $ $ 9.97 TOTAL DIRECT EXPENSES $ $ $ RETURNS ABOVE DIRECT EXPENSES $ $ $ Figure 3. Selected Direct Cost Items for Original Budget.

4 The modified Direct Expense calculations are shown in Figure 4. The modeled scenario of a 25% share of seed cost, ginning and hauling cost, fertilizer cost, herbicide cost and insecticide cost results in an expected direct cost of $ per acre to the landlord and an expected direct cost of $ per acre to the tenant. The expected net return above direct expenses in this case is $ per acre for the landlord and $ per acre for the tenant. DIRECT EXPENSES GINNING Gin & Haul lb $ $ % $ $ FERTILIZERS Potash (60% K2O) cwt $ $ % $ 8.91 $ UAN (32% N) cwt $ $ % $ $ HERBICIDES Clarity pt $ $ % $ 1.28 $ 3.82 Glyphosate 3lbs a.e oz $ $ % $ 4.16 $ Gramonone SL 2.0 oz $ $ % $ 4.40 $ Reflex 2LC pt $ $ % $ 1.88 $ 5.63 Cotoran 4L pt $ $ % $ 2.90 $ 8.70 Dual Magnum pt $ $ % $ 6.31 $ Diuron 4L pt $ $ % $ 1.40 $ 4.18 INSECTICIDES Acephate 90% lb $ $ % $ 2.54 $ 7.61 Centric 40WG oz $ $ % $ 2.35 $ 7.05 Karate Z oz $ $ % $ 0.34 $ 1.03 Bidrin 8WM oz $ $ % $ 0.49 $ 1.47 Incidental Pest Trt acre $ $ % $ 3.00 $ 9.00 SEED/PLANTS Cotton Seed B2RF thous $ $ % $ 8.10 $ TECHNOLOGY FEE B2RF Cot Tech Fee thous $ $ % $ $ INTEREST ON OP. CAP. acre $ $ % $ $ 9.97 TOTAL DIRECT EXPENSES $ $ $ RETURNS ABOVE DIRECT EXPENSES $ $ $ Figure 4. Selected Direct Cost Items for Modified Budget. This scenario was designed to demonstrate how these enterprise budgets can be modified to examine the economic feasibility of cotton production and land tenure arrangements. In this particular situation the positive return above direct expenses of $ per acre indicates that cotton production in this system is feasible in the short-run. In addition, the share return to the landlord of $ per acre would represent the upper bound for short term cash rent.

5 Printing and Saving the Scenario To print the scenario, the user should select File from the Excel Main Menu, Print from the File Pulldown Menu, then select Fit Sheet to One Page as the Sizing Option before clicking on the Print Icon as shown below in Figure 5. To save the scenario select File from the Excel Main Menu, then select Save As from the File Pulldown Menu then enter the File Name you wish to save the scenario under (Example in this case) in the Save As dialog box before clicking the Save Icon (Figure 6). Figure 5. Printing the Scenario. Figure 6. Saving the Scenario.