Peanuts, Cotton, Corn, or Soybeans?

Enterprise Budgets Help You Decide (Apr 02, 2014)

By Henry G. Grant, Gadsden County Extension Director
The most importance decision to be made by farmers for the 2014
cropping season is the choice to develop a management plan and
budget. Unusual weather events, increased production costs, and an
expected decline in return on investment demands a survival
strategy. Therefore, the decision to plant one or more of the four major
row crops in this region relies on what you are best equipped to
manage. Well thought-out management will be the key to profit,
breakeven, or loss.
The use of an enterprise budget is a key tool to use in making decisions on what to plant and how much
you are willing to invest after looking at the projected profit and break even scenarios. Maintaining
structured control of input costs, and at the same time producing the highest yields possible under these
restrained conditions, is paramount for success.
Enterprise budgets are a guide that individual producers can use to determine risk and return. More
importantly, growers can use their own figures to develop a more realistic estimate of profit, breakeven, or
loss. Enterprise budgets use only estimates and projections. Changes in price, yield, and actual costs of
production will influence the return on investment. Therefore, your management plan should go a long
way in helping you make the best choices. The following link provides a list of enterprise budget
worksheets for each commodity to help you analyze production costs, etc. North Florida Research and
Education Center Enterprise Budget Information.
The tables below from the University of Georgia 2014 Peanut Update-2014 Cost And Returns Outlook,
show 2014 budget estimates for peanuts, cotton, corn, and soybean. The budget estimates are intended
as only a guideline as individual operations and local input prices vary. The fixed cost must also be
considered and is deducted from the return above variable cost. For financial planning purposes, Chuck
Danehower, University of Tennessee Extension has been using the following projected prices for 2014:
corn $4-$4.50 bushel corn; cotton $0.78 $0.80 per pound, and soybeans $11 $11.50, and
Nathan B. Smith and Amanda Smith, University of Georgie Extension, use a price of $440 per ton for
peanuts in their enterprise budget estimates
Table 1. Comparison of Per Acre Return above Variable Cost for Non-Irrigated Crops
Expected Price Expected Yield Variable Cost* Return Above VC
Peanut $440 3400 $554 $194
Cotton $0.75 750 $419 $144
Corn $4.60 85 $285 $106
Soybean $10.80 30 $227 $97
Table 2. Comparison of Per Acre Return above Variable Cost for Irrigated Crops.
Expected Price Expected Yield Variable Cost* Return Above VC
Peanut $440 4700 $670 $364
Cotton $0.75 1200 $532 $368
Corn $4.60 200 $630 $290
Soybean $10.80 60 $328 $320
2014 University of Georgia preliminary cost enterprise budgets. Source:ifas.ufl.edu


The information above is from Tennessee. We have slightly different data for Texas. Suppose a
farmer has 150 acres available for planting corn and cotton on irrigated land. The cotton seeds cost
$3 per acre and the corn seeds cost $5 per acre. The total labor costs for cotton will be $15 per acre
and the total labor costs for corn will be $8 per acre. The farmer expects the income from cotton to be
$80 per acre and the income from corn to be $110 per acre. The farmer can spend no more than
$540 on seeds and $1800 on labor. How many acres of corn and how many acres of cotton should
the farmer plant in order to maximize his income?

Organize the information given in a table.





Write a system of linear inequalities in x and y that describe the constraints on this situation.
Connect each inequality with the problem situation.




Graph the inequalities. What are the vertices of your feasible region?


Check three points inside your feasible region. What do
you notice?





Check three points outside your feasible region. What do
you notice?






How many acres of cotton seed and how many acres of corn seed should the farmer plant in order to
maximize his income? Will the farmer plant all 150 acres? Why or why not?






How does this data compare with the information from Tennessee?