Knowing your cost of production tells you what to plant

Reported by: Rebecca Rivers
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Updated: 3/21/2013 9:22 am

Decision making is a huge part of what farmers do to keep their heads above water within their ag production businesses. And right now there is still time for farmers to decide what crops they want to plant. The big talk here at home since last harvest season has been whether to plant cotton or grain. Steve Verett with Plains Cotton Growers said that the ever-changing and unpredictable commodity markets are mainly what's driving those choices.

"With cotton prices having increased, insurance price being set at .83 cents, I think there's a little more tendency maybe at this point to maybe stick with what folks have been doing. And that's what they're familiar with, and that's cotton," Verett said. "The last couple of years we've planted over 4 million acres of cotton on the plains. I feel sure that we're going to be something less than 4 million, something a little more close to our average of around 3.5 - 3.6 million acres."

Farmers are also gaging what to do with any wheat they have in the fields currently and if they should plant a crop behind it.

"A lot of these acres that went to wheat could come out and be dry land cotton acres, maybe not insured. If they have insurance on their wheat and it's dry land insurance then you can't insure the second crop, cotton as dry land.," Verett said. "But if prices continue on cotton to stay in that .80 to .90 cent futures area, and we get some rain, it would be attractive to folks to come in behind that wheat and plant cotton and take a chance on growing some dry land cotton."

Early grain sorghum and corn contracts will shift some production acres away from cotton. Verett said that some of these planting decisions were made months ago when producers locked in at higher prices.

"Cotton prices have come up, grain prices have come down, and that difference is not as wide as what it was in January," Verett said. "Sorghum is still an option for a lot of folks, and especially I think we don't know for sure how many people actually contracted to grow some sorghum back in the early part of this year, maybe even last fall when grain prices were significantly higher than what they are today. If they contracted, you know they're going to have to grow that crop in order to fulfill that contract, especially in light of the fact that grain prices have come down since then."

Now the most important number for producers to know according to Verett is their cost of production. This can change from year to year and vary by farm. But knowing that number will help farmers make the best decision for themselves.

"If cotton gets to a price where you feel like you can make some money on, that's what needs to be the decision guiding whether you contract cotton or not. And every producer needs to know what that point is because it's different," Verett said. "It's different from north to south, it's different from irrigated to dry land, so it's important that a producer sit down and figure that out and try to make a rational decision in that regard."

Of course other factors affecting producer decisions to plant include crop rotations, water availability, and equipment and labor.

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