Projected Costs and Returns Crop Enterprise Budgets for Sweet Potato Production in Louisiana, 2019

Kurt Guidry, Sistrunk, Myrl W., Smith, Tara  |  1/29/2019 5:24:46 PM

Kurt Guidry, Tara Smith, and Mryl Sistrunk1
1 Professor, Department of Agricultural Economics and Agribusiness, LSU Agricultural Center, Baton Rouge, LA; Regional Director, Northeast Region, LSU Agricultural Center, Winnsboro, LA; and Extension Associate, Sweet Potato Research Station, LSU Agricultural Center, Chase, LA.

Introduction

This publication presents estimates of projected costs and returns for sweet potato production in Louisiana for the 2019 crop year. Producers are annually faced with critical management decisions that impact the employment of production inputs for various crop enterprises and the combination of crops that will be assembled into a cropping system. The need for reliable information is crucial if sound production decisions are to be made. Planning information plays a pivotal role in the development of annual crop production plans by producers and is important in supporting their efforts to secure the necessary resources to carry out their plans. In addition, information regarding production alternatives and costs and returns for major crop enterprises is needed by extension personnel, researchers, lending institutions, and others involved in agriculture or agribusiness. The purpose of this report is to provide planning information regarding crop production costs and potential market returns for the 2019 crop year.

Crop enterprise budgets in this report are presented in two budget formats. The first budget format (Table A) is a summary of costs for the crop enterprise. The second budget format (Table B) provides the sequence of production activities and operations assumed to be conducted by the producer throughout the planting, growing, and harvest seasons. For each activity, the table provides the equipment and implements used, the month of operation, the amount of labor required, the amount of machine time required, and any inputs used. Labor costs, input costs, custom application/service costs, and direct and fixed costs for tractors and equipment are included for each activity. All costs are summed to provide an estimate of the total cost per activity. In addition, projected returns at various yield and price levels are provided in subsequent tables (Tables C through E).

Procedure

The general procedure used in this study was to project machinery and other input price data and apply these data to the production practice data for crop enterprises produced in Louisiana. Input prices were obtained through a combination of surveying farm input and service suppliers and collecting price data available through the Mississippi State Budget Generator Program. This input price data forms the basis for estimating 2019 planning budgets.

Machinery and other input cost data are presented in the Appendix of this report.

The budgets included in this report represent the most common production and harvest strategies being employed by commercial sweet potato producers in Louisiana. All budgets are categorized by per acre total direct expenses and per acre total fixed expenses for a production season. Within these two broad categories, the various inputs are itemized with their respective costs. Although a particular enterprise budget is presented on a per acre basis, some individual cost items are specified on an hourly or price per unit basis. Direct expenses include such cost items as seed, fertilizer, chemicals, fuel, labor, repairs, and irrigation. Fixed expenses include such items as depreciation and interest on investment which are generally incurred during the production period.

The budgets included in this report were developed using the same computational procedures as utilized by the Mississippi State Budget Generator Program and as used by the LSU AgCenter in developing budgets for other row crop commodities. The Mississippi State Budget Generator provides a standard format for crop and livestock budgets and the computational procedures utilized are widely accepted for estimating projected commodity costs for planning purposes.

Expected Crop Yields and Market Prices

Projected crop enterprise budgets in this report include a calculation of expected market returns for the crop. Market returns are based on assumptions about market prices and crop yields. Projected crop yields were based on conversations with producers and LSU AgCenter sweet potato production specialist regarding their expectations for expected yields given normal weather conditions. Projected market prices were also developed based on conversations with industry personnel regarding current and projected price movement. No estimate of income from farm program participation or crop insurance is included in these budgets due to the wide variety of farm program and crop insurance choices available to producers.

Direct Production Costs

Direct or variable production costs were estimated based on a specific set of production activities assumed conducted throughout the production period. These set of production activities were identified through meetings with producers and LSU AgCenter sweet production specialist. These production strategies represent the most commonly utilized strategies in the production of sweet potatoes in Louisiana. Costs associated with conducting these activities are estimated using input price data collected through industry surveys and from the Mississippi State Budget Generator Program. Herbicide, fertilizer, and insecticide expenditures for each enterprise budget are based upon the types of chemicals producers generally reported using for that situation. Suggested prices for selected farm inputs and custom application rates are presented in the appendix.

Hired labor was charged at $13.65 per hour for all classes of labor. This wage rate includes a basic wage rate set at the adverse wage rate for Louisiana ($10.69 per hour) plus additional costs for social security, Medicare, and workman’s compensation (an additional 26.75%). While farm labor may not be generally available on an hourly basis, any hourly charge represents a practical method for charging labor to the respective crop enterprises on a per acre basis.

Interest on operating capital (short term) was charged at a nominal rate of 6.00% per year. Operating capital was assumed to be borrowed in a manner consistent with the timely acquisition of inputs. Fuel price for diesel was set at $2.50 per gallon and gasoline was set at $2.00 per gallon. Variable costs for tractors, self-propelled machinery, and irrigation machinery include the cost of fuel, lubrication, and repair.

The intermediate interest rate was charged at an historical real rate of 6.50%. The reasoning behind the difference in short and intermediate term rates is that longer term nominal rates are highly variable and closely follow the trend set by the rate of inflation. Intermediate interest rates above the real rate of interest can overstate true interest costs because they overlook the value gained by an asset due solely to inflation.

Farm Machinery Costs

Machinery cost data were obtained from a combination of a survey of machinery dealers and data available through the Mississippi State Budget Generator Program. For specialized machinery for sweet potato production, cost data were obtained through communication with producers and LSU AgCenter sweet potato production specialist. New machinery prices were used to reflect the economic cost of acquiring and maintaining capital assets in current dollar values. Purchase prices for power and machinery items included in this report are presented in the appendix. Other data included in the appendix indicate hours of annual use and years of life for each selected machinery item. Fuel consumption, salvage value, accumulated repair costs and other machinery performance data are based on ASAE standards. Machinery fixed costs are calculated using the capital recovery method which includes estimates of both annual depreciation and interest on investment.

Overhead Costs

Overhead costs reflect significant expenses associated with the operation of the entire farm business, but are not necessarily attributable to a specific crop enterprise. Examples of farm overhead costs include tax services, record keeping, utilities, farmstead maintenance, and insurance and property taxes where applicable. General farm overhead costs can vary greatly from farm to farm based on many factors including farm size, land tenure, and crop production technology utilized. As the primary purpose of this report is to estimate production cost associated with a specific commodity, no charges for general farm overhead are included.

Land and Management Charges

The estimated production expenses included in this report include only direct and fixed expenses associated with the production of the specific crop enterprise. Labor charges included in the enterprise budgets only include charges for field labor. No charges for management are included. In addition, no charges for land are included in the enterprise cost tables. Following each set of enterprise cost tables, a set of net return tables are included. These tables provide net returns above total specified costs and represent returns to land, management, and general farm overhead. In other words, the returns would be what is left after paying direct and fixed expenses and would be available for paying land, management and overhead expenses.

Acknowledgements

The authors are indebted to Louisiana sweet potato producers and LSU AgCenter Extension Service agents and Experiment Station scientists for their cooperation and assistance in providing specific production practice information.

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