Profitability of Cotton Crop Rotation Systems in Northeast Louisiana

Kurt Guidry, Boquet, Donald J., Hutchinson, Robert L.

Kurt M. Guidry, Amos Bechtel, Steve Hague, Robert Hutchinson and Donald Boquet

The production and marketing environments of row crop agriculture have changed dramatically since passage of the 1996 Farm Bill. Under previous Farm Bills, price support systems let producers establish continuous or monocrop cropping systems with less concern for market signals. For the most part, as long as producers could grow the crop efficiently, the price support system provided sufficient returns to assure profitability. The farm program provisions encouraged year-after-year planting of a single commodity, which prevailed as a primary cropping system used by farmers in Louisiana’s Mississippi River Delta.

Current agricultural policy, however, is more market-driven. Producers have to be more responsive to market signals because of increased income risk and uncertainty. The removal of acreage restrictions along with government payments no longer tied to production have given the producer the flexibility to select crop mixes and cropping systems based on market signals rather than policy provisions. This has brought increased interest in the use of crop rotation systems as both a production and marketing risk management tool. To use crop rotation effectively, however, requires an understanding of the production costs and yield effects of the annual crop selection decision.

Why Crop Rotation?

Recent trends in cotton, corn and soybean acres in Louisiana indicate that producers may become more receptive to crop rotation systems (Figure 1). Cotton acreage in Louisiana before the 1996 Farm Bill had increased from 810,000 in 1990 to nearly 1.1 million acres by 1995. By 1998, however, cotton acreage had decreased to 535,000, a decline of more than 50 percent from the peak reached in 1995. During this same period (from 1995 to 1998), corn acreage increased by more than 200 percent, and soybean acreage increased by more than 12 percent.

Crop rotation is not a new phenomenon in production agriculture. Benefits include improved soil productivity and pest management and enhanced risk management with greater enterprise diversity. Rotation can provide more plant residue to soil than monocrop systems, thus improving tilth and water-holding capacity. By alternating between the different types of root systems of the various crops, more of the soil profile is used for crop production. In addition, rotating crops aids integrated pest management strategies. Rotation may disrupt life cycles of many insect pests and pathogens. Increasing plant diversity also may encourage beneficial insects, nematodes, fungi and bacteria to flourish. Moreover, rotation provides growers with an opportunity to alternate herbicides. For instance, weeds difficult to control in corn, such as johnsongrass, may be easier to manage with herbicides labeled for cotton or soybeans.

Analyzing Crop Rotation Data

This economic analysis includes 10 years of crop rotation data from 1989 to 1998 taken from research studies done on Commerce silt loam soils at the LSU AgCenter’s Northeast Research Station. The research station is located in the Mississippi River alluvial flood plain in Tensas Parish near St. Joseph, La. Three continuous cropping systems and five rotational systems were included in the study. Both two- and three-year rotations were considered with cotton as the base crop rotated with either corn or soybeans or both.

All continuous crops were planted each year of the study. But, because of space limitations, all rotation treatments were not grown in the same year. For example, the cotton-corn rotation did not include both the corn and cotton portions of the rotation in the same year, so averages of each crop’s yields were inadequate to determine the effect of the rotations on crop yield within each rotation. Therefore, the missing years’ crop yields were estimated using linear regression methods. The estimated crop yields are shown in Table 1. In all cases for all crops, the crop rotations resulted in higher crop yields than continuous cropping.

To compare the profitability of the alternative rotations, the concept of a rotation acre was used. The rotation acre assumes each crop in the rotation sequence is produced in equal proportion each year or, alternatively, each acre could be thought of as being composed of an equal proportion of each crop in the rotation. This allows the direct comparison among single, two- and three-year systems.

Production cost estimates were developed for each crop using the 1999 Louisiana Agricultural Experiment Station enterprise budgets for northeast Louisiana. Primary cost savings in each rotation were the result of reduced nitrogen requirements for cotton following either corn or soybeans. Nitrogen fertilizer applications were reduced by 25 pounds nitrogen per acre for cotton following soybeans and 20 pounds per acre following corn.

Pest Management’s Benefits

Although crop rotation can be a benefit to pest management, the cost savings are more difficult to quantify. Disruption of the life cycles of insect pests and pathogens, along with the ability to alternate herbicides to control weeds, can help increase the efficiency and success of pest management strategies. Rotational systems, however, do not necessarily guarantee fewer pesticide applications or the ability to use less expensive pesticides. In addition, current pest management systems specified in the 1999 enterprise budgets were assumed to be cost effective enough that substantial savings in pest management would not be experienced. As a result, the benefits of crop rotation on pest management were viewed to affect the profitability of rotational systems over monocrop systems in terms of yield response rather than cost savings.

Which cropping system to use is based upon the expected costs and returns for each alternative system. Expected returns for each alternative are determined, given the producer’s expectation of yields and prices. Given the poor market conditions and prospects for cotton, corn and soybeans, expected prices were set at the average loan rate in 1999 for each commodity. Expected yields were set at the estimated average yields shown in Table 1.

Gross revenues and net returns over direct costs per rotation acre are shown in Table 2. Under the base price scenario, the rotation having the highest return over direct costs was the cotton-cotton-soybean rotation at $294.58 per rotation acre. The returns to continuous cotton, cotton-cotton-corn and cotton-soybean rotations were similar at $244.89, $243.31 and $237.88 per rotation acre, respectively. The ranking of crop rotation strategies is, however, sensitive to the price relationships among the three commodities, and an increase in the price of one or two commodities could change the relative profitability of each rotation.

Figure 2 shows the change in the returns over direct costs per rotation acre for the six cotton rotations as the cotton price increases relative to the corn and soybean base price. To determine the impact of different price scenarios, cotton prices were varied in 10 percent increments from the base price of 52.4 cents per pound. Results indicated that, as cotton prices trend higher, the rotations with a higher proportion of cotton increased in profitability faster than did the other rotations. Returns per rotational acre for the continuous cotton strategy experienced the highest improvement in returns with roughly a 25 percent increase for each 10 percent increase in price. Conversely, the cotton-corn-soybean rotation saw only around a 10 percent increase in returns for each 10 percent increase in cotton price.

Varying cotton prices had little effect on how each rotation strategy ranked in terms of profitability. A 10 percent increase in cotton prices from the base price of 52.4 cents per pound replaces the cotton-corn rotation as the least profitable strategy with the cotton-corn-soybean rotation. The only other change seen was when the cotton price was increased by 40 percent from the base price. At a 40 percent increase in the price of cotton, the continuous cotton system replaces the cotton-cotton-soybean as the most profitable strategy.

Yields Higher in Rotational Systems

Crop rotations have the potential to improve crop yields and whole-farm profitability. Profitability of the selected rotational systems was affected by both improved yields and cost savings; however, results indicated that enhanced yields proved to be the most critical factor in the relative profitability of each rotation. In this analysis, yields for each of the rotational systems were higher than the monocrop systems. Potential cost savings from rotational systems are difficult to pinpoint and were assumed to be limited to savings in fertilizer application.

Using the base crop price scenario and mean rotation yields, the cotton-cotton-soybean rotation provided the highest return over direct production costs. The cotton-cotton-soybean rotation had returns above direct costs that were $49.69 per acre and $132.40 per acre higher than the continuous cotton and continuous soybean systems, respectively.

The ranking of each rotational system in terms of profitability remained fairly stable even as cotton prices were allowed to change. Only with a 40 percent increase in cotton prices did the cotton-cotton-soybean rotation lose its status of most profitable. With cotton prices at 40 percent higher than the base scenario, the continuous cotton system becomes the most profitable.

This study was initiated before the adoption of transgenic crops and the boll weevil eradication program, and both are likely to affect any crop rotation decision. These factors likely discourage crop rotation by curtailing some expenses of insect and weed control in a monocrop system. Some benefits of rotation over monocrop systems have diminished with the advent of transgenic crops and the boll weevil eradication program.

(This article appeared in the summer 2001 issue of Louisiana Agriculture.)
6/3/2005 1:43:03 AM
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