Ep. 74 The National Cotton Profit & Loss Tool

00;00;22;22 – 00;00;24;18
Dr. Ryan Loy
Fantastic, Hunter. How about yourself?

00;00;24;24 – 00;00;33;07
Dr. Hunter Biram
Doing good. Yeah. So you and I yesterday, and so, you know, we’re recording this on a Tuesday, yesterday we went to Walnut Ridge and had a really good meeting up there.

00;00;33;07 – 00;00;46;03
Dr. Ryan Loy
I really enjoyed it. I thought it was great discussion. You know, a lot of stakeholders came, a lot of farmer’s came, of course. And it was just, it was a great time, honestly. And honestly, the conversations we have afterwards are really just worth their weight in gold. So it was really nice.

00;00;46;03 – 00;01;03;11
Dr. Hunter Biram
Yeah. You know, one thing I really loved and appreciate about that meeting was just how many actual farmers we had in the room. You know, we engage with a number of stakeholders and, you know, it often feels like we engage with a lot of consultants and we engage with policymakers and people involved in that process, and that’s really important, don’t get me wrong.

00;01;03;11 – 00;01;20;16
Dr. Hunter Biram
But I just love meeting with farmers. Just boots on the ground, like, bona fide, like they’ve been doing this for, you know, 40, 50 years and, getting to hear from them. I mean, I just learned a tremendous amount. So I think that’s one thing I really loved about that meeting was just how the concentration was actually farmers…

00;01;20;18 – 00;01;44;09
Dr. Hunter Biram
Here actually going through all the stuff that we’ve been talking about lately. But today, Ryan, you’re going to be talking about your work with the National Cotton Profit and Loss Calculator. And I say your work, I mean, your hard work. You spent a lot of time on this, and it is a slick tool, very slick tool. So maybe you start off by just kind of bringing our listeners up to speed with a little bit of background on the tool, and, then we’ll go from there.

00;01;44;09 – 00;01;45;21
Dr. Hunter Biram
Perfect. Well.

00;01;45;24 – 00;02;03;22
Dr. Ryan Loy
I appreciate you giving me an opportunity to kind of, show this off today. And, so kind of some background on what this tool is, we’re calling it the National Cotton Profit and Loss Calculator for our listeners that are familiar with our, Arkansas crop profit and loss calculator. It’s actually very similar, except it’s just expanded on a little bit.

00;02;03;22 – 00;02;25;26
Dr. Ryan Loy
So the format of it is very similar to our other tool, which I’m imagining a lot of folks are familiar with. We’ve talked about it before, and really what we wanted to do here was, you know, as you and I were developing that profit and loss tool, we were kind of trying to figure out the best way to include, you know, differences in cotton, like rebates and ginning costs that, you know, you don’t have in the other commodities.

00;02;25;26 – 00;02;41;20
Dr. Ryan Loy
And so I happened to be in Memphis earlier this year at a meeting, sat next to a random stranger, had no idea who he was. And it turns out that he was part of Cotton Incorporated and, found out he was a cotton farmer. So I asked him some questions and I showed him our tool, and they got real excited.

00;02;41;20 – 00;03;01;05
Dr. Ryan Loy
And next thing you know, we kind of have a we have an agreement with Cotton Incorporated to develop this profit and loss calculator for cotton producing states. So that’s kind of the main background here. And really what we’re trying to do is develop a tool that cotton producers can use. And it kind of be all encompassing in terms of budgeting and planning for the year.

00;03;01;05 – 00;03;23;03
Dr. Ryan Loy
So what we’re doing here is, again, following the same format as our profit and loss tool. So we will link the tool in the newsletter as well. You’re going to have your first tab, which is the profit and loss table, exactly like our other tool. Exactly like it, except it’s only for cotton. The unique thing here as well is that we have different state options.

00;03;23;03 – 00;03;52;23
Dr. Ryan Loy
So any state that produces cotton is an option in here. And so you can select your state, the county in which you produce. And once you select that county, just like our other tool, those yields are going to update to county specific yields. Choose your practice irrigated or not. And your rental agreement. And so once you make those selections you can kind of look over a range of prices and a range of county average yields and kind of determine your break even, you know, where are you going to break even at?

00;03;52;23 – 00;04;12;22
Dr. Ryan Loy
Where are you going to break money across combinations of prices and yields. Now that’s where our other tool stops. And what gets me really excited about this tool is that again, we pull in those budget costs just like we did on the other tool. Except for this one, there’s actually an option to create your own enterprise budget. And this actually gets me really excited here.

00;04;12;22 – 00;04;36;06
Dr. Ryan Loy
So how it works is once you make that state selection, it will pull that university’s enterprise budget for cotton production in the state. It’ll pull that in and actually itemize it for you within the tool. So you’re going to have basically your main categories of operating expenses and fixed expenses. Then you’re going to have subcategories like such as field inputs, crop insurance, you know, labor and fuel.

00;04;36;06 – 00;04;56;01
Dr. Ryan Loy
And so all those are going to be itemized. So a few things from this perspective. Let’s say that you just pulled in the state of Alabama. So Alabama’s cotton budget, it’s going to pull that in. All those line items are going to be involved on there. And you can just use this. You can just use this. And it will update to the profit and loss table in terms of your expenses.

00;04;56;06 – 00;05;12;29
Dr. Hunter Biram
So to be clear, we are with the University of Arkansas. But you’ve gotten this funding from Cotton, Inc. to make a national tool. So you just mentioned Alabama. So could you maybe list off what the other states are? And you know, you said like you have state level extension budgets for each of these states rights, right?

00;05;12;29 – 00;05;32;01
Dr. Ryan Loy
Yep. And there was a few that that didn’t have state level extension budgets even though they produce cotton. So we were able to just we kind of assumed that they were at least similar in those states. We just said, okay, they’re going to have the Arkansas cost, because the whole idea is to just have a starting point for a budget, and that way the user can go in and change whatever.

00;05;32;01 – 00;05;57;22
Dr. Ryan Loy
So really, the starting point from the budget is less important than being able to go in and change that. So some of the states that we have included, like I mentioned, Alabama, Arizona, Arkansas, of course, California, Florida, Georgia, Kansas, Louisiana, Mississippi, Missouri, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia. And so those are the states that we have auto populated in here.

00;05;57;22 – 00;06;10;15
Dr. Ryan Loy
But just let’s say, for example, the state that you produce cotton in for some reason is not included in this tool. You can use whatever budget you want because you can create your own in here, which is really what gets me excited about this tool.

00;06;10;17 – 00;06;29;14
Dr. Hunter Biram
So to be clear, you know, some states had budgets that we could put in and some didn’t. And so even if it did have the cost, though, that might not be representative of what a farmer’s actual cost is. So they want to go in and they need to go in and tailor more tailor made, make a more tailor made budget for their operation.

00;06;29;14 – 00;06;54;21
Dr. Ryan Loy
Exactly right. And so that’s kind of where our profit and loss tool for Arkansas stops, right? We have that, we put in the cost for them. And you know, they can change it a little bit, but not to the degree and not to the granular amount that you can with this tool. So let’s say for example, I’m a farmer in Arkansas and I pull in, the Arkansas budget. Right now, by looking at my operating expenses and fixed expenses.

00;06;54;28 – 00;06;58;22
Dr. Ryan Loy
I have a total expenses of about $1,000 an acre.

00;06;58;22 – 00;07;01;00
Dr. Hunter Biram
And is that at the state level?

00;07;01;02 – 00;07;02;04
Dr. Ryan Loy
This is at the state level.

00;07;02;09 – 00;07;07;00
Dr. Hunter Biram
Okay, so all these expenses will probably be at the state level. That’s right. Nothing county level for expenses.

00;07;07;00 – 00;07;25;15
Dr. Ryan Loy
Nothing county level for expenses. The only thing that’s county level in here is going to be the yields for the profit and loss table. And so again when you’re looking at this budget here, we don’t have a revenue category because the profit and loss table essentially acts as our revenue category. So I didn’t include it here. Just mainly worried about kind of looking at your expenses.

00;07;25;17 – 00;07;55;15
Dr. Ryan Loy
And so the idea here is that now a farmer can use this, look at this and go, okay, operating expenses for field inputs right now is about $603 an acre. And field inputs is going to include things such as seeds, custom spray fertilizers, defoliant and some assorted supplies, kind of miscellaneous supplies. And what you can do is you can say, okay, well, seeds and plants, according to the University of Arkansas, is going to cost me about 109, let’s say, $103 an acre.

00;07;55;17 – 00;08;18;20
Dr. Ryan Loy
But I know on my farm that it’s cheaper than that. So what I can do is I can actually come in here, and again in the newsletter this week, I will link this and I’ll, I’ll include some screenshots of what I’m doing. You can come in here and remove this category, this cotton seed category as a whole. So let’s just say for example, I don’t think that it’s going to cost me $110 an acre for seeds and plants.

00;08;18;24 – 00;08;40;10
Dr. Ryan Loy
Okay. So I’m going to remove that. And what do you know our total expenses updates to remove that are field inputs doesn’t have that seeds in plants anymore. But what we can do is similar to how we make our selections for state, county, and practice we can actually add line items. So we’re in operating expenses. So let’s select operating expenses.

00;08;40;10 – 00;08;59;20
Dr. Ryan Loy
Select subcategory of seeds and plants which we’re going to change. We can type in our own item description. So I’m just going to type in cotton seed. We have units choices. And I’m going to just select thousands. So thousand seeds… let’s just actually select bag make it easier let’s say price per unit of bag. Again I’m just making this up as $20.

00;08;59;20 – 00;09;20;11
Dr. Ryan Loy
And I’m going to buy four bags in total. And so once you put in those assumptions, there’s going to be a little note that says you’re going to add this to your operating expenses category into the Seeds and Plants subcategory. So we’re going to click Add Item. And now our total expenses and our field inputs are going to reflect an $80 per acre cotton seed charge.

00;09;20;11 – 00;09;49;01
Dr. Ryan Loy
So again just a way for these producers to kind of have some more granular, what if analyses when it comes to their farm. But let’s say, for example, I’m coming in here and I’m messing with it. I change my custom spray amounts, I change my labor amounts, but then I maybe make a mistake along the way. What you can do is click the reset to state template button, and it’s going to reset to what that university’s budget says and remove all the stuff that you had changed, and then you can go back in there and work from the beginning as well.

00;09;49;01 – 00;10;10;03
Dr. Ryan Loy
One other thing that’s a little different than our Arkansas Crop Profit and Loss Calculator is that we do include fixed expenses here for this analysis. However, very similarly you can come into fixed expenses and you can remove all of them as you’d like. If you just want to look at your operating expenses. Or you can come in here and again adjust anything that you want to do.

00;10;10;04 – 00;10;28;22
Dr. Ryan Loy
Now this is still a work in progress. And so what I would love for our listeners to do is that if you, you know, if you’re playing with it, if you’re messing with it, and I would love for you to do so, please give us some feedback in terms of how we can make this better. You know, I know Hunter and I enjoy making these ads because they’re fun, but we want to make sure that they’re also just as useful, right?

00;10;28;22 – 00;10;44;22
Dr. Ryan Loy
We like to have fun, but if it’s not useful, then we want to make sure that it is. So if there’s a way that I can improve this or make this better, I’m all ears. So let’s say that I’ve come in here now and I’ve chosen my operating expenses. I’ve chosen my fixed expenses, I’ve got all of those set that better represents my farm.

00;10;44;22 – 00;11;19;20
Dr. Ryan Loy
Well, I can come over to this farm summary tab and it’s going to summarize my total expenses, my expected yield at the county level, my expected price and my break evens across the farm. And you can actually click download and it will download the summary for you. So what’s the idea and why here? On the summary side, our hope is that this summary provides a detailed enough breakdown of your analysis and what you expect on the farm this year, that you can print this out and take it to your lender, and y’all can use this to, base your lending off of for the next year.

00;11;19;20 – 00;11;37;28
Dr. Ryan Loy
This hopefully would help kind of alleviate some stress when it comes to budgeting on the farmer side and on the lender side as well, because they can kind of see it all encompassing. I will say, like I said before, this is a work in progress. So the summary tab right now just has a few of the highlights in terms of the demographics of your farm.

00;11;37;28 – 00;11;57;24
Dr. Ryan Loy
But I still think that there is many other ways we can go about it. And that’s another thing that I would like from our listeners is to say, hey, this is great, but it would be better if it had this, you know, if that’s a full line item breakdown of the budget, if that’s a pie chart of the expenses, the main expense categories, whatever it may be, we’re still looking at that.

00;11;57;27 – 00;12;14;24
Dr. Ryan Loy
So again, my hope is that this kind of helps when it comes to budgeting and lending and kind of improve some of that expectation and planning for that next growing season. But I don’t think that this is going to stop in and please interrupt me. I don’t think that 100 and I want this to stop just at cotton.

00;12;14;27 – 00;12;34;19
Dr. Ryan Loy
I think that we want to eventually work this out to every crop that we can available in the state of Arkansas, for sure, but across the nation as well. I mean, so really, that’s kind of the overall view of what’s going on here. And I think that, you know, just to kind of wrap this up, some expectations for the future and what we’re going to try to do with this.

00;12;34;19 – 00;12;52;26
Dr. Ryan Loy
Well, will be promoting it in the counties this year at our production meetings. But also we’re going to continue to add to it. We’re going to continue to make this more user friendly and a lot of that’s going to be driven by user feedback. So we really would appreciate some of the user feedback, even if it’s bad, all of it, we can use it and help improve this.

00;12;52;26 – 00;13;06;04
Dr. Ryan Loy
So, Hunter, I think that’s really mostly what I have. And again, if any of our listeners or readers have questions, please feel free to reach out to myself or Dr. Biram. We’d be happy to answer questions, take calls, whatever it may be.

00;13;06;04 – 00;13;27;14
Dr. Hunter Biram
Yeah, this is great, Ryan. This is an awesome tool. I’m just amazed. Very, very impressed. Very amazed, very user friendly. The user interface is easy to, you know, it’s easy to work with. And there are dropdowns. But it’s not like, to me, sometimes drop downs, can be a little overwhelming, but the way that you have it packaged is like just a little bit at the time.

00;13;27;14 – 00;13;45;09
Dr. Hunter Biram
Like, it’s like a little bit of a… it’s like one bite leads to another bite, into another bite. And it just tracks it all so cleanly. And, I mean, you have little notes in there that say, hey, like, if you’re going to update your seed cost, it’s going to go into operating expenses, like pretty much asking you, are you sure that you should put that there?

00;13;45;15 – 00;13;58;08
Dr. Hunter Biram
You know, so I think that that’s great because, I mean, I know personally I need to always be checking myself before I’m wrecking myself, right? You know, so I think that that, that that is so good. So two, two things. And then we’ll wrap this up. Absolutely. This is free.

00;13;58;11 – 00;13;59;18
Dr. Ryan Loy
It is 100% free.

00;13;59;18 – 00;14;00;24
Dr. Hunter Biram
This is free. No account.

00;14;00;25 – 00;14;01;12
Dr. Ryan Loy
No account.

00;14;01;13 – 00;14;24;00
Dr. Hunter Biram
No account needed. It’s totally free. So you said there’ll be a link in the newsletter. So go ahead and play around. Play around with it. The second thing, do you know if these state budgets generally account for ginning costs? I know that we have an option to include a rebate, but I think we at least at Arkansas, there is ginning cost that is a line item in the budget.

00;14;24;00 – 00;14;43;18
Dr. Hunter Biram
And so it may look like your expenses are higher if you’re not going to include the rebate, because that’s all I know. In talking with our friend Scott Stiles, he says normally the, the rebate offsets the ginning cost and it’s kind of at a wash most of the time. So do you know, generally if most states have this or which states might have this and which don’t?

00;14;43;18 – 00;14;45;18
Dr. Hunter Biram
And how should someone think about ginning cost?

00;14;45;18 – 00;15;06;12
Dr. Ryan Loy
That’s a great question. And honestly that’s something I’m learning as well, because that was part of the question I asked, you know, to the […] that got us the funding for this and trying to understand, the cotton world. Really, in short, our budgets include it. Most states do include a line item for ginning. However, most states don’t include on the revenue side a rebate for cotton.

00;15;06;15 – 00;15;30;07
Dr. Ryan Loy
So they do have a charge for it. But to your point, let’s say, for example, that somebody is using this and they said, oh, well, my cotton rebate is going to pay for my ginning and hauling. So then what you can do again, if there’s a better way we can go about this. For the cotton folks that are listening, I think you go in here, you remove that ginning expense from your actual operating expenses, answered no on the cotton rebate, and it comes out as a wash.

00;15;30;07 – 00;15;31;26
Dr. Hunter Biram
Okay. Yeah, that’s interesting.

00;15;31;26 – 00;15;48;04
Dr. Ryan Loy
But again, we can change that and streamline that a lot better. And I think that that’s where we continue to talk to some of the cotton folks and figure out exactly what, how to make this better, because I know that it’s so the cotton rebate and the ginning, it’s not standardized across, right? You know, some really do get a true rebate above

00;15;48;04 – 00;15;51;02
Dr. Ryan Loy
their ginning, some just zero it out, some have to pay.

00;15;51;02 – 00;16;08;21
Dr. Hunter Biram
And the reason I’m bringing it up is because it can be a pretty significant portion of your cost. Absolutely. So it can make it look like your breakeven yield is actually maybe bigger than what you might need it to be. So that’s why I think it’s important that Ryan, I appreciate you doing that. Like walking us through how you would look at changing that in the budget.

00;16;08;21 – 00;16;32;06
Dr. Hunter Biram
It’s going to be under operating expenses, under post-harvest. Yep. Okay. And then there’s going to be post-harvest expense. And then there is going to be a line for ginning cost that’s in there. And I think right now we’ve got hauling and ginning at I what is that two, $2. It’s at, what is it, $0.10 a pound, for doing 22 pounds and storage and warehousing $48.

00;16;32;08 – 00;16;35;02
Dr. Hunter Biram
So I mean, it’s looking like it’s about 50 bucks, probably.

00;16;35;02 – 00;16;35;22
Dr. Ryan Loy
Per acre.

00;16;35;29 – 00;16;41;18
Dr. Hunter Biram
Per acre. So then if you want to, you can even just put, yes, put a cotton rebate and just put 50 bucks in there and then they offset.

00;16;41;21 – 00;16;43;06
Dr. Ryan Loy
That’s exactly right.

00;16;43;08 – 00;16;49;11
Dr. Hunter Biram
So anyway, like you said, work in progress. But man, this is I mean, it’s got to be at like 90%. I mean…

00;16;49;11 – 00;17;07;09
Dr. Ryan Loy
About there, it’s there’s it’s always going to be a work in progress in our minds, right? Because there’s always going to be something cool we can add to it to make it better. And honestly, these are one of those things where anybody’s input is extremely helpful here in terms of how we can streamline it and make it better, because I’d imagine if you’re thinking it, somebody else is thinking it as well.

00;17;07;09 – 00;17;10;00
Dr. Ryan Loy
And so if we can do that and we’ll implement it.

00;17;10;00 – 00;17;11;13
Dr. Hunter Biram
Awesome, well, Ryan. Thank you for your time today.

00;17;11;13 – 00;17;15;25
Dr. Ryan Loy
Thank you Hunter, I really appreciate you having me. Have a merry Christmas. You too. And I hope everybody does as well.

00;17;15;25 – 00;17;19;18
Dr. Hunter Biram
Yeah, everybody else too. And, of course I’ll stay tuned for the market report. Thanks.