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Better gross margins

Cotton Flower

The use of different planting row configurations helps manage yield potential, fibre quality and production costs with dryland cotton – all of which can positively influence your gross margin.

Advances in biotechnology have resulted in improvements in managing insects and weeds. You can now use fewer insecticide sprays to manage pests, which means reduced labour, lower costs and a more manageable cash flow.

A new suite of high yielding and high quality varieties for dryland cotton is also available. These are highly adapted for dryland production, giving you the opportunity to maximise returns while minimising risks. With the Cotton Choices™ program, you can select Cotton Choices™ 3: End Point Royalty (EPR), where the majority of your insect control costs are pushed to the end of the season and you only pay for what you pick – this makes it much easier to manage cash flow.

Planting row configuration

The vigorous taproot of the cotton plant allows for wider exploration of the soil profile for moisture and nutrients, particularly when compared with fibrous root type crops like corn and sorghum. This characteristic has led to the use of wide row configurations that increase the total amount of soil moisture available to the plants, extending the time before in-crop rainfall is required.

In row configuration trials, fibre quality – especially fibre length – improved with wider row configurations. Therefore the row configuration chosen,  in combination with the seasonal conditions experienced,  will have an influence on the likelihood of achieving a premium for your harvest.

Savings in variable costs of inputs such as planting seed, insecticides, defoliants and the picking operation are also more likely with wider row configurations.

Taking this into account, a lower yielding, wider row configuration crop can at times give a better gross margin than a higher yielding crop on a closer configuration – particularly in areas with lower rainfall. Indeed, gross margin is not just a function of the yield produced, but a combination of the cotton lint yield, fibre quality and costs associated with the row configuration chosen.

Dryland cotton gross margin (GM per ha) sensitivity analysis

Single Skip Bale and post ginning seed price combined
Yield (B/ha) $400 $450 $500
2.75 $265 $402 $540
3.25 $433 $596 $758
3.75 $602 $789 $977

 

Double Skip Bale and post ginning seed price combined
Yield (B/ha) $400 $450 $500
2.5 $259 $384 $509
3.0 $427 $577 $727
3.5 $595 $771 $946

 

Super Skip Bale and post ginning seed price combined
Yield (B/Ha) $400 $450 $500
2.0 $173 $273 $373
2.5 $341 $467 $592
3.0 $510 $660 $810

 

How does the planting row configuration affect variable costs?

Dryland cotton has a couple of ‘big ticket’ items that make up the majority of the growing costs, namely picking and technology licence fees.

In wide row configurations, efficiencies in picking can be made through not trafficking every pass, with some contractors charging on a green hectare basis.

The Roundup Ready Flex®  and Bollgard II®  technology licence fee can either be based on a green hectare rate or on the Cotton Choices™ 3: End Point Royalty where the licence fee paid is related to the yield achieved. This not only minimises risk for the grower, it also assist with cost management as the fee is not paid until ginning.

Approximate variable costs breakdown (per ha)

Single Skip Double Skip Super Singles
Consultant $60 $60 $60
Planting $70 $60 $50
Weed Management Fallow $96 $96 $96
In-Crop $45 $45 $45
Total $141 $141 $141
Insect Control $59 $50 $41
Defoliation $43 $37 $30
Harvest & Cartage $268 $210 $185
Post Crop Management $80 $80 $80
Technology Licence $261 $198 $130
Total $982 $836 $717

 

Cash flow

There is a perception that dryland cotton is a capital-intensive crop to grow. While inputs costs are higher than other summer cropping alternatives, a breakdown of the cash flow over the growing season shows that right up until harvest, it has a similar variable cost accumulation to a comparable crop such as sorghum.

Picking and post-crop management operations comprise approximately 40–50% of the total variable costs with dryland cotton. Many of these costs can be grouped as bale or yield related costs, such as cartage and licence fees, where yield determines the final cost incurred. Payment of some of these costs is not required until after payments are received from the cotton merchants at ginning.

Cottonseed: the forgotten commodity

Cotton Seeds

As well as the cotton lint produced, cottonseed is a tradable commodity. There is a ready market for cottonseed meal or whole seed for livestock feed and for cottonseed oil for cooking. Price fluctuations are dependant on Australian supply and demand (varying according to the size of the Australian cotton crop).

In recent years, growers have been able to offset the cost of ginning as well as add some extra to the bale price due to the strong demand for cottonseed.

“Dryland Cotton, if done well, offers the highest return of any crop available to farmers. You may have some tough years, but over the long-term nothing has come close to matching it.”

Robert Eveleigh, CSD Agronomist and Dryland Cotton Grower, Wee Waa, NSW