Lettuce cost and return estimates, 2010

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Lettuce Cost and Return Estimates, 2010
Annual Data Report 203-2010
Brette Hadley, Jerry M. Hawkes, and James D. Libbin1
Cooperative Extension Service • College of Agricultural, Consumer and Environmental Sciences
Long-run continued success of New Mexico’s com­mercial lettuce crop will, as always, depend upon the profitability of the crop in any or all of its various forms. Table 1 presents typical costs and returns of producing lettuce in the primary producing areas of New Mexico. These estimates provide comparisons that can be used by current and prospective lettuce producers and proces­sors to assess the profitability of lettuce production.
Lettuce is an increasingly recognizable commodity grown in New Mexico. The bulk of the production is concentrated in three counties in southern New Mexico. The lettuce is harvested, packaged, and shipped dur­ing the fall and spring. Most of the lettuce is sold to the wholesale market, while some is sold through local farmers’ markets and roadside stands. The lettuce can go on to be chopped or shredded for restaurants and pre­made salads or sold whole. Regardless of the end use of the lettuce, the crop must provide an adequate return to cover all of the producer’s costs.
Obtaining a higher price or reducing costs can generate increased profit. The cost-return relationship must be examined carefully by every producer of every commodity, whether in agriculture manufacturing, or service industries. Because of the economic structure of agriculture markets, cost and return relationships are particularly important. The basic building blocks of cost and return analysis are enterprise budgets, which are later organized and compiled into other budgets, includ­ing whole farm, partial, and cash flow budgets. An en­terprise budget includes all costs and returns associated with producing an enterprise in some particular manner. Enterprise budgets are constructed on a per-unit basis, such as per acre, to make a workable comparison among alternative enterprises. An enterprise is any activity that results in a product used on the farm or sold in the market, and a farm is made up of any one or many en­terprises. Each enterprise requires a certain combination of resources, such as land, labor, machinery, capital, and purchased inputs.
Enterprise budgets can estimate costs and returns on enterprises currently in the farm plan, as well as new enterprises being considered. Most enterprise budgets also list physical resources needed for production, which is useful information for prospective new producers of a commodity. In addition to producers, many other pro­fessionals in agriculture find enterprise budgets valuable information sources. These include lenders, assessors and appraisers, consultants, and lawyers. The New Mexico State University Cooperative Extension Service pub­lishes representative budgets for various regions of the state annually. These enterprise budgets represent typical costs and returns for a given size and method of produc­tion in a particular region of the state. The budgets are not averages, but represent typical situations.
NMSU budgets represent current conditions for farming situations where management is above average. Adjusting these budgets for prices and yields expected in the future would increase their value as decision-making tools. Projections based upon a farm’s unique set of conditions would be most valuable. Some items can be modified easily to build more personalized budgets. Quantities and prices of purchased inputs, yields and prices of crops, the cost of fuel, and labor costs may be readily adapted to individual farms. Another example of a modification to these budgets is to analyze each operation performed on each crop. If these operations are performed in a different pattern, the budgets should be changed. Yields and prices of the crops are highly variable from year to year. In analyzing historical bud­gets for use in forward planning, the astute manager will decide how much risk can be adsorbed, and select cropping patterns accordingly. In forward planning, the manager should consider both optimistic and pessimis­tic price and yield combinations to account for risk, and should consider crop rotation plans.
The effect of the various costs on planning decisions and business analysis is very important. These estimates present a full-cost approach to enterprise analysis. Many
1Respectively, former graduate student, Department of Agricultural Economics and Agricultural Business; Associate Professor, Department of Agricultural Economics and Agricultural Business; and Associate Dean and Director of Academic Programs, College of Agricultural, Consumer and Environmental Sciences,
all of New Mexico State University.