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Dug peanuts in a field

Row-crop producers are facing several challenges due to high input prices and limited availability of inputs this year. Supply-chain issues have elevated fertilizer prices, limited machinery availability, and caused difficulty obtaining certain products. However, with the prices of several commodities at their highest levels in a decade, there are still opportunities for growers to profit. This article will evaluate the economics of cotton and peanut production in Alabama this year, as we approach the planting season.

Cotton

The U.S. increased cotton production by 21% in 2021 to 17.6 million bales. This was driven by an increase in the harvested acreage nationwide. Despite an almost one million-acre decrease in planted cotton acreage, harvested acreage increased by 1.7 million acres. Lowered projected exports are expected to elevate ending stocks to 3.5 million bales. However, global ending stocks are expected to continue to decline. Increases in global mill use have reduced global stocks each of the past three years and led to higher prices. U.S. cotton prices are projected to reach a marketing-year average of 90 cents per pound.

Now, the higher cotton prices combined with higher input prices begs the question of what net returns to cotton production will look like in 2022. Using enterprise budgets from the Alabama Cooperative Extension System, let’s evaluate how major costs compare to 2021. These budgets use Extension recommendations, and while they do not account for every single expense are they exact for every operation, they serve as a useful gauge of profitability for a representative enterprise. For cotton, we will use the budget for South Alabama Reduced Tillage cotton production.

Table 1: Select Categories from the South Alabama Reduced Tillage Cotton Enterprise Budget

20212022Change
Total Revenue595701+18%
Total Costs689826+20%
Variable Costs532663+25%
  • Fertilizer
74160+116%
  • Herbicides
7583+11%
Fixed Costs158163+3%

Table source: https://www.aces.edu/blog/topics/farm-management/south-alabama-reduced-tillage-cotton-enterprise-budget/

On the cost side, a 116% increase in fertilizer expenses is expected to contribute to a 25% increase in variable or operating costs. Total costs increased from $689 to $826 per acre from 2021 to 2022. However, revenues are expected to increase by 18% to $701 per acre, due to an estimated cotton price of 82.5 cents per pound. Variable costs are expected to jump in 2022, following a moderately increasing trend from 2016 to 2021. Next, we consider net returns above variable costs (which measure revenue minus operating expenses) as a measure of profitability, as shown in the figure below. Keep in mind that the numbers presented do not account for fixed costs such as machinery expenses, overhead, or a rental rate for land. Net returns for cotton are expected to decrease from $63 to $38 per acre, which would be the second-lowest value in the past five years.

Figure 1: South Alabama Reduced Tillage Cotton Variable Costs and Net Returns by Year

Peanuts

Strong peanut production in 2021 was driven by higher yields. Yields increased 8.9% from 2020, to 4,135 pounds per acre nationwide. Georgia – the highest producing peanut state – saw yields reach 4,450 pounds per acre, while Alabama saw yields decline slightly to 3,400 pounds per acre in 2021. The increase in peanut production comes despite a decline in planted acreage. Acres fell by 5% nationwide, to 1.59 million acres. Acreage planted to peanuts in Alabama was unchanged from 2020, remaining at 185,000 acres. Overall, U.S. peanut production was at its third-highest level on record at 3.2 million tons.

The strong production combined with decreased peanut use are expected to increase peanut stocks following the 2021/2022 marketing year, as shown in Figure 2. Peanut use is expected to decline by 4% this marketing year, primarily due to a 5% forecasted decrease in exports. Although, food disappearance is expected to increase by 1% from 2020. Increases in consumption of peanut butter (5%), peanut candy (4%), and peanut snacks (3%) drove the domestic peanut food demand increase throughout the 2020-2021 marketing year. The peanut butter consumption increase follows the similar-sized increases observed the previous year, as its demand has increased throughout the COVID-19 pandemic. In all, peanut stocks are expected to increase by 5% to 1.1 million tons. Peanut prices are expected to be higher than they were in 2021, to be able to compete with other commodities’ high prices.

Figure 2: US Peanut Production, Disappearance, and Stocks
Data Source: USDA Economic Research Service, Oil Crops Outlook, February 2021.

Table 2: Select Categories from the Dryland Peanut Enterprise Budget

20212022Change
Total Revenue744788+6%
Total Costs700736+5%
Variable Cost567602+6%
  • Fungicides
9099+10%
  • Herbicides
7583+11%
Fixed Costs133134+1%

Table source: https://www.aces.edu/blog/topics/farm-management/peanut-enterprise-budgets/

Peanut Net Returns

How do net returns for peanuts compare to previous years? On the cost side, the largest operating expenses for peanuts come from fungicides and herbicides, which are expected to increase by 10% and 11% from 2021, respectively. Overall, variable costs are expected to be 6% more costly, amounting to $602 per acre. Total costs are expected to increase 5% to $736 per acre. However, total revenue is expected to increase by 6% to $788, per acre, exceeding the increase in total costs.

Figure 3: Dryland Peanut Variable Costs and Net Returns by Year

Variable costs are expected to increase again in 2022, following general decreases from 2016 to 2020. Net returns above variable costs are expected to increase by $9 per acre to $168 per acre, due to expected increased revenues. The $168 net returns would be the highest since 2017, which saw an expected value of $220 per acre.

What does this mean?

Economic conditions show varying returns for cotton and peanuts in Alabama in 2022. Alabama Extension’s enterprise budgets show cotton returns declining and peanut returns slightly improving. With the high input prices, opportunities for producers to profit rely heavily on securing high commodity prices. Knowing costs of production and managing costs will be especially important. Also, producers can use marketing tools available (such as put options) to limit downward price risk while remaining open to potential benefits should prices continue to increase.

More Information

For more information, visit the Alabama Extension farm management page to view row-crop enterprise budgets.

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