B-I O20 JULY 1§64 An Economic Analysis Of Cotton Gin Plants— High Plains, Rolling Plains and Lower Rio Gronde Vo||ey of Texas TEXAS A8.--{{oeom\o0/. m. venue eowms \. FORY mesaouo I new“!!! - aw. _ l - oeuo ' — X I Lure / ; - \ ..~' - _ 'GONZALE>\LAVACA _/ _ é XIII!!! UVALDE IEUNA _ ymflflg" $141991“ >\_ _ meson “ \ . /" oevmv - \.Y-/ \__\ ) ~ - mzxsou . . n “u” n” ‘uswnvfuucs VICTORIA ‘ ‘Muse D i GOLIAD - ‘A g _ “t... . - see ‘ s mun u sues uuttm‘ |_|vg\ i kimono on: - . ,, Sm ‘ _4 wnmcuo ‘/ fl . '5‘; guy“, g NUQCES § xeeaenn man 4"‘ Qoaoons-xeneov now - ,__.. - j sum: - ‘L I‘ l‘ lfllDgLco a r O '0 Q. ' ' Q $*eaon 0 0 Locations of the gin plants analyzed in the accounting study. x Ln——IZrn—lZ©(fi Summary ________________________________________________________ __ 5 Introduction _________________________________ __' ___________________ __ 5 Objectives of the Study ___________________________________________ __ 5 RESEARCH PROCEDURE ________________________________________ 1- 6 Logical Framework _________________________ __i _________________ __ 6 The Ginning Process __________________ __l_;li ________________ __ 6 Models of Cost Relationships ________________________________ __ 7 Methodology: Acconuting Cost Studies versus Model Plant Studies___1 7 ANALYSIS OF ACCOUNTING REVENUES AND COSTS___- ______ __:'__ 7 Sources of Data for Accounting Study ____________________________ __ 7 Methods of Analysis for Accounting Study _______________________ __ 8 Organization of Data _____________________________________ __ 8 Organization of Areas _____________________________________ _1 8 Analysis of Accounting Revenues and Costs for the Plains __________ __ 9 Total Revenues ___________________________________________ __ 9 Total Costs ______________________________________________ __ 9 Revenues Per Bale _______________________________________ __ 9 Costs Per Bale ___________________________________________ __1O Analysis of Accounting Revenues and Costs for the Lower Rio Grande Valley ________________________________________________ -_11 Total Revenues ___________________________________________ __11 Total Costs ______________________________ _t_ ______________ __11 Revenues Per Bale ________________________________________ __12 Costs Per Bale ___________________________________________ __12 ANALYSIS OF MODEL PLANT COSTS _____________________________ __13 Rated Capacities versus Productive Capacities of Model Gin Plants_.._113 Sources of Data for Model Plant Study _________________________ __13 Methods of Analysis for Model Plant Study ______________________ "15 Classification of Model Plant Costs __________________________ __15 Methods of Estimating Model Plant Costs _____________________ __15 Estimation of Model Plant Costs ________________________________ __16 Variable Costs ___________________________________________ __16 Labor _______________________________________________ __16 Electricity ___________________________________________ __17 Drying Fuel _________________________________________ __19 Bagging and Ties ____________________________________ __19 Repairs _____________________________________________ __19 Fixed Costs ______________________________________________ __19 Depreciation ____________________________ u‘ ____________ __19 Opportunity Costs _____________________________________ __2() Management and Office Workers ________________________ __2() General Overhead ____________________________________ __21 Total Ginning Costs Per Bale for Options I and II ____________ __22 COMPARISON OF ACCOUNTING AND MODEL PLANT COSTS _____ __25 References ________________________________________________________ n26 Bibliography ______________________________________________________ __26 An Economic Analysis Of Cotton Gin Plants— High Plains, Rolling Plains and Lower Rio Grande Valley of Texas UNITED STATES COTTON PRODUCTION has migrated west- ward since World War I1 and new irrigation facili- ties, new cotton varieties, new cultural practices and mechanized equipment have been developed. More than half the U. S. cotton is presently produced in the Far West and Southwest. Cotton dominates crop sales as a source of farm income in California, Arizona and New Mexico. In Texas where about 30 percent of the U. S. cotton is presently produced, cotton production has moved west from East Texas and the Blacklands to the High and Rolling Plains, Figure 1. Before 194-0, East Texas and the Blacklands produced more than 40 percent of the Texas crop, but today this area produces less than 15 percent of the Texas crop. The High and Rolling Plains produces more than 50 percent. Many new gin plants were built throughout the High Plains area of Texas during the last decade, Figure 1. Also, the gin plants on the High Plains ginned much more cotton in 1960 than they did in 1950. For instance, Crop Reporting District 1 had only 277 plants to gin the 1950 crop of 805,130 bales-——an average volume of 2,907 bales,per plant. But during the fifties, many new larger- capacity gin plants were built and many older plants increased ginning capacities. By 1960, this area had 4-06 plants to gin the year’s crop of 1,946,984- bales, an aver- age volume of 4,796 bales per plant. Many of the 1960‘:gin plants were not only larger than those operated in 1950, but had materially different equipment components. The relatively simple plants with one or two pieces of precleaning equipment, several sim- *Respectively, former assistant professor and assistant professor, Department of Agricultural E-‘conomics and Sociology. ;..-r.;::r.ir1;::s|:.':::::;1_n - ; . . . . . _ . . . ¢ _ . . . . . -. --L‘_.Z.._-».__..__._ - Russell C. Thompson and J. M. Ward* ple gin stands and a press were replaced by gin plants with complex systems of precleaning and drying equip- ment, especially in the newer production areas. Gin plants on the High and Rolling Plains in 1961 used over- head cleaners and seed-cotton driers; 95 percent used bur machines and 85 percent had two or more stages of lint cleaning The length of ‘the harvesting season and the useful life of gin plant equipment has changed. Machine har- vesting methods over the years have continued to shorten the harvesting period, emphasizing the need for ginning equipment with greater hourly capacities. Technological obsolescence has become the main factor causing mana- gers to revise depreciation schedules. It is now quite common for managers, especially on the Plains, to de- preciate their gin plant equipment fully in 10 years or less. These changes have had significant effects on the costs of ginning cotton. Many new gin plants costing between $200,000 and $300,000 have been built that have annual depreciation costs between $20,000 and $30,000. Such depreciation costs represent large commitments to be recovered in relatively few short harvesting periods. Obiectives of the Study The primary objective of this study was to estimate costs of three sizes of model gins with capacities of 8, 10 and 12 bales per hour which could be located in areas like the High Plains, Rolling Plains and Lower Rio Grande Valley. These estimates were obtained from a study of the relationships among major components of ginning costs (labor, electricity, drying fuel, bagging and ties, repairs, depreciation, opportunity costs, man- 5 Crop Reporting District Key: High Plains . Rolling Plains Western Cross Timbers Block and Grand Prairies East Texas Timbered Plains Trans-Pecos . Edwards Plateau Southern Texas Prairies . Coastal Prairies South Texae Plains 5@w~@w+v~r Crop Reporting District Number ot Bales Number ot Active Gins 2 amsa I60 a s,see 4 4 I 40,219 29s 8 l86,727 l2l lo Source: U. S. Department of Commerce, - Bureau of the Census, Cotton Production in the United Stotesflirops of I940, I950 and I960, Equivalent 500 Pound Boles. Figure 'l(b). Production of cotton and number of active cotton gins in Texas by Crop Reporting Districts, I940, "I950 and ‘I960 crop years. agement and general overhead) and factors which in- fluence these costs significantly: bales ginned, amounts of seed cotton needed per bale, method of harvesting, length of harvesting season, systems of equipment com- ponents, weatber, labor contracts, institutional factors, electrical rates, useable life of plant equipment and types of plant equipment. Specific cost relationships were then formulated for each of the major cost components of the model plants. The second objective was to estimate ginning reve- nues and costs from the accounting records of a set of relatively new gin plants located on the High Plains, iRolling Plains and Lower Rio Grande Valley. This objective was of a different nature than the first and its accomplishment provided a comparative base against which the model plant cost estimates could be cross- checked. The third objective was to estimate the relationships between ginning costs and volume for a long-run period in which replacement of the gin plant would be conceiv- able. Estimates of these long-run relationships were sought to determine the economies of size and the likely future trends in sizes of gin plants. Research Procedure The logical framework providing the means of study- ing ginning costs evolved from a detailed analysis of the 6 ginning process. The process of ginning was broken down into distinct stages with common functions. Each stage was analyzed in terms of its components and its relation to the overall process. With this approach, the process provided the conceptual frame of reference for the study. LOGICAL FRAMEWORK The Ginning Process The ginning process of a modern gin plant is a set of correlated flow processes which are generally eiigi- neered for a given plant to operate at an optimum rate. This rate is determined when the gin plant and equip- ment are purchased. Usually little can be done to modify the rate once a plant has been built. It is a decision with which an owner must live for the operating life of a gin plant unless he makes major modifications. Fully electric gin plants typically have relationships of fixed proportionality among the relatively costly varia- ble inputs——labor, electricity, bagging and ties. When- ever they are ginning cotton, they generally utilize a fixed number of men at each working station and fixed amounts of electricity, bagging and ties per unit of time. A relatively fixed relationship also exists between the amounts of seed cotton ginned in a given production area and the amounts of lint and seed received. On the High and Rolling Plains, and in other areas where ma- chine-stripping and hand-snapping harvesting methods are used, 2,000 pounds of roughly-harvested seed cotton yield a 500-pound bale of lint (which includes 21 pounds of bagging and ties) and 800 pounds of seed. Fixed relationships also exist between outputs and inputs for areas like the Lower Rio Grande Valley where machine and hand-picking methods of harvesting are used; 1,500 pounds of seed cotton yield a 500-pound bale of lint and 800 pounds of seed. The ginning process consists of six distinct stages: 1. receiving and unloading, 2. precleaning and drying, 3. ginning, 4~. seed accounting and storage, 5. lint cleaning and 6. pressing. These stages, except preclean- ing and drying, are nearly identical throughout the cot- ton industry. Some other differences may develop in the future if more seed cotton storage is utilized. Varia- tions are sometimes made in the second stage for differ- ent types of harvested cotton. For roughly-harvested cotton, gin plants typically use the following precleaning and drying components: one rock and green boll catcher, one separator, one automatic feed control, two stages of drying, two stages of cleaning, two bur machines (split), one stick and green leaf machine, one distributor and several extractor feeders. If gin plants are ginning hand and machine-picked cotton almost exclusively and little if any salvaged cotton, they may not use any bur ma- chines. els of Cost Relationships The ginning process can be analyzed relative to the tionships between variable physical factors and vol- 1- and also between most of the variable costs and v ume. Hours of labor, kilowatts of electricity and bag- l/g ties will be positive linear functions of volume be- " gin plants consist of a correlated set of flow proc- iw Costs of labor and bagging and ties also will be glitive linear functions of volume if the prices of these ors do not vary with the amounts purchased. Elec- city rates are generally quoted on a minimum demand ' graduated energy rate basis. Thus electricity costs‘ constant below a minimum level of usage and a set positive linear step functions if the demand charge is ,1 ceded- This analysis determines the forms of all variable vst relationships except drying and repair costs. If ing and repair costs are assumed to be constant per e, then variable and fixed costs may be added to ob- f, short-run total costs. The form of this short-run cost function therefore will be a positive linear ction of volume or a set of positive linear step func- ns. Per-hale short-run total costs are derived from the f l cost function and will decrease as volume increases illong as the total cost function is strictly linear} These fort-run average costs also will decrease for the most lrt over the range of volume even if the total cost func- v Mn is a set of linear step functions. é Per-bale long-run costs for all sizes of gin plants ll also decrease as volume increases. Equipment and f ilding costs typically increase at decreasing rates with ' ' e. For example, a 4--horsepower electric motor costs i per horsepower than a Z-horsepower motor. Similar lationships exist for many other types of equipment ‘in building investments. Moreover, short-run variable increase at near-constant rates as plant size in- ieases. Thus, relatively large plants will have smaller rage costs than small ones in the long-run if overhead j administrative costs increase at constant or decreas- f; rates as plant size increases. ETHODOLOGY: ACCOUNTING cosr sruouss a vsnsus MODEL PLANT sruonzs g Until recently, many economists estimated cost rela- nships on the basis of accounting records. Account- i: figures provided a data base with which economists uld analyze the opierations of a relatively large number .1 similar firms and‘ estimate cost levels in an industry i‘ ickly. This approach though has one severe limita- t, = a + b V where C is total costs per unit of time and _, is the volume ginned. Expressing this on a per-unit average costs are C/V : a/V + b. Thus, C/V Ways decreases with increases in V since “a” and “b” r e posltive constants. tion: it provides an unsound basis for scientific infer- ences. Accounting costs are the final results of each firm’s management decisions and as a result, they repre- sent a confounding of the relevant price and physical input-output relationships. French, Sammet and Bressler (2, 3) pioneered the model plant method of estimating costs, in which each firm’s operations are partitioned into different produc- tion processes which are further broken down into sep- arate stages. This building-block methodology makes it possible to estimate input-output relationships by stages and ‘convert them into cost functions having one relevant set of prices. ‘ In this study, both methods were used to analyze costs of gin plants located on the High Plains, Rolling Plains and in the Lower Rio Grande Valley. An ac- counting cost study was made to obtain general informa- tion about total ginning costs and their components and a model plant study was made so that definite conclusions could be drawn about the short and long-run relation- ships between ginning costs and volume. Analysis of Accounting Revenues and Costs SOURCES o|= DATA FOR ACCOUNTING STUDY’ The basic data for the accounting study were ob- tained from the Houston Bank for Cooperatives. The bank had developed a comparable set of annual revenue and cost summaries from the accounting records of the gin plants having outstanding loans. This set of sum- maries gave an economic digest of the operations of 130 relatively new or recently rebuilt gin plants located on the High Plains, Rolling Plains and Lower Rio Grande Valley. Most of these plants ginned relatively large volumes of cotton, Table 1. Ninety-six percent of the plants on the Plains and 92 percent of those in the Valley ginned more than 2,500 bales each harvesting season. It may be noted too, that this set of summaries rep- resents revenues and costs of operation of gin plants for 6 years, 1954-59, on the High Plains and in the Lower Rio Grande Valley and for two years, 1958-59, on the Rolling Plains. Operating results for 130 plants were obtained from 483 observations. The number of revenue and cost summaries ana- lyzed for single-battery plants on the High Plains and “The data base for the accounting cost study was not se- lected by random sampling. The degree that these data are representative of the population of gin plants operat- ing in Texas is unknown. It is only known that these plants are dispersed throughout the High Plains, Rolling Plains and Lower Rio Grande Valley areas and competing with many other gin plants. (See Figure lb) 7 in the Lower Rio Grande Valley remained relatively con- stant for the 6 years, 1954-59, Table 2. This constancy is especially noticeable for the High Plains area where the number of plants studied varied from 33 to 37 for all 6 years. METHODS OF ANALYSIS FOR ACCOUNTING STUDY Organization of Data, The Bank for Cooperatives had organized their an- nual revenue and cost summaries into revenue and ex- pense components. Revenues consisted of the receipts for ginning, bagging and ties (net), cottonseed (net) and other operations. Expenses were divided into the following cost components: Direct Expenses Indirect Expenses Other Expenses Labor Repairs (parts and Interest and Power and labor) Banking Utilities Insurance Depreciation - Salaries Taxes and Licenses Bale Penalties and Fire Losses Office Auditing and Legal Telephone and Telegraph Bad Debts Bracero Miscellaneous For the analysis made in this study, trucking and bracero costs were deleted. This was done because these costs were not uniform among gins and among areas. Trucking costs vary with the distance from the gin plants to the compresses and the oil mills. They also depend upon the hauling operations performed by the gins. Some gins spread the burs back on the farmers’ fields and others do not. costs at different gins. related items for braceros. would be more meaningful if these two categories of costs were not included in the analysis? Some further changes wereimade in the organiza- tion of costs and the number of ilcost components. The- category “Other Expenses” was included as general over- head within “Indirect Expenses” along with depreciation and repairs. and banking, insurance, taxes and licenses, office (zfists, bale penalties and fire losses, auditing and legal costs, telephone and telegraph expenses, bad debts and miscel- laneous costs) were aggregated and analyzed as a com- posite called general overhead. The following breakdown summarizes the organiza- tion of revenues and costs used in this study: ORGANIZATION OF REVENUES AND COSTS Costs Revenues Direct Indirect Ginning Labor4 Depreciation Cottonseed (net) Power 81 Repairs (parts 81 Bagging 81 ties utilities labor) (net) Salaries General overhead Organization of Areas Fundamental differences exist between cotton har- vesting methods on the High and Rolling Plains and in the Lower Rio Grande Valley. Little cotton is hand- picked in the High and Rolling Plains; some hand snap- ping is still practiced on the Rolling Plains, but machine “Bracero costs were relatively small and near zero for most of the plants studied. ‘Labor represents the wages of those people who are di- rectly concerned with the operation of a gin plant during the harvesting season, While salaries represent the wages of the manager and the office workers. TABLE 1. NUMBER OF MULTIPLE AND SINGLE-BATTERYI GIN PLANT RECORDS ANALYZED RELATED TO THE NUMBER OF BALES GINNED, HIGH PLAINS, ROLLING PLAINS, AND LOWER RIO GRANDE VALLEY, GINNING SEASONS 1954-59 Bdes of High Plains Rolling Plains Total “"0" Qlfmed Multiple Single Multiple Single Multiple Single Less than 2,500 12 8 23 2,500 - 4,500 64 19 34 117 4,500 - 6,500 5 72 13 36 126 6,500 - 8,500 26 43 5 3 19 96 8,500 - 10,500 23 18 2 5 48 10,500 - 12,500 29 3 1 33 12,500 - 14,500 15 1 16 14,500 - 16,500 12 1 1 14 Greater than 16,500 9 1 10 Total 119 212 4 40 11 97 483 ‘A battery consists of a set of correlated stages which are typically used to gin cotton: receiving and unloading, precleaning and drying, gin- ning, seed accounting and storage, lint cleaning and pressing. ponent; asSOCIOTed with one press. 8 In other words, a battery may be looked upon as the set of equipment com- Variations also exist between bracero ,_ Some gins furnish housing and a It was felt that the results I All of the relatively minor costs (interest f ‘flipping is the rule». However, Valley producers ma- f e-pick or hand-pick almost all of the cotton they duce. _ With different harvesting methods, different amounts trash are harvested; thus different amounts of seed 5» on are required per bale. Therefore, a 500-pound 'e of lint can be obtained from around 2,000 pounds , seed cotton on the High and Rolling Plains and only I pounds in the Lower Rio Grande Valley. p, Another significant difference between the northern southern cotton-producing areas is the typical length _= the harvesting or ginning season. In the Lower Rio lande Valley the season starts around July 1 and ends fetime between September 1 and September 15. The rvesting season on the High and Rolling Plains starts er the Valley season is finished and actually lasts much iger. The season commonly starts around the last part September and occasionally continues into February. ~= In addition to the variations between the northern f southern areas of Texas, it seems likely that ginning ‘ts might also differ between the High Plains and the lling Plains. These differences on the Plains would anticiapted because of the somewhat different harvest- i; methods used throughout the area. Separate eco- fmic analyses were made for the High Plains, the Roll- g Plains and the Lower Rio Grande Valley to compare - different ginning costs. 1 ALYSIS OF ACCOUNTING REVENUES AND COSTS FOR THE PLAINS5 ‘ ptal Revenues p Figures 2 and 3 provide an overall perspective of llationships between total revenues and volume for the I jgh and Rolling Plains gin plants. Total revenues of .1011 and multiple-battery plants are shown to increase oportionately with the number of bales ginned. Also, l1. analysis of the revenues and costs of the multiple- g=ttery plants located on the Rolling Plains is not made h this section. Only four gin plant records were avail- le for analysis. Revenue and cost tables for these four 7'1 ants are given in an Appendix available from the De- artment of Agricultural Economics and Sociology, Texas &M University. i. relatively little variance exists about the straight-line average relationships plotted on each chart, especially for the single-battery plants. Revenues of the multiple-bat- tery plants varied considerably more for all volumes ob- served than those of the single-battery plants. Total Costs Total ginning costs for single and multiple-battery plants on the High and Rolling Plains varied much more about the average relationships represented by the straight lines in Figures 4 and 5 than total revenues did. This emphasizes the importance of management and how managers influence’ the profit position-of a gin plant. Obviously, gin plant revenues are determined largely by competitive forces which managers cannot influence. Gin plant costs vary significantly among plants and managers are able to influence their cost position mainly by effi- cient resource use. Costs of the multiple-battery plants on the High Plains varied more about the straight line average than those of the single-battery plants, Figure 4-. The most reasonable explanation of these differences is manage- ment practices. It generally takes much more ability to manage a large investment than a small one. Revenues Per Bale Total revenues per bale, total costs per bale and all components of revenues and costs per bale were expressed relative to the number of bales ginned. The volume cate- gories were broken down into 2,000‘-bale increments starting with a volume of 2,500 bales. This provided a means to evaluate the relative importance of each revenue and cost component. Also, it provided a relatively straightforward method of discussing revenue and cost relationships. Revenues per bale of the plants on the High and Rolling Plains were relatively constant regardless of the volume ginned, Tables 3 and 4~. Revenues of the single- battery plants on the High Plains varied from $17.29 per bale for volumes less than 2,500 bales to $17.50 per bale for volumes greater than 10,500 bales. The situation for the single-battery plants on the Rolling Plains was some- 2. NUMBER OF MULTIPLE AND SINGLE-BATTERY GIN PLANT RECORDS ANALYZED BY HARVESTING YEAR, HIGH PLAINS, ROLLING PLAINS, AND LOWER RIO GRANDE VALLEY GINNING SEASONS OF 1954-59 . _ ~r Rio Grunde Volley 119 212 lrveslins Hi9“ Phi“ R°I"“9 PM“ iii- TOM Y9" i, I Multiple Single Multiple Single Multiple Single i, 54-55 1a 3a 2 12 60 55-55 1 s s6 1 17 69 55-51 1a 35 1 18 71 51-58 22 a4 2 18 76 511-59 2s 37 19 a 15 99 59-60 2a 37 2 21 2 11 107 4o 11 97 4&3 TOTAL smums REVENUES (THOUSANDS OF DOLLARS) / 4OO - // // o9 QQ Q0 )4) 320 '"' Q 9/ @ / / o, A <9 ._ @' Q 240 _ Q o - I60 " ' SINGLE GIN BATTERY PLANTS <9 MULTIPLE GIN BATTERY PLANTS BO " o l l l I l L l I l l I O 2 4 6 8 IO l2 l4 l6 l8 2O 2| BALES OF COTTON GINNED (THOUSANDS) Figure 2. Total revenues per ginning season related to bales of cotton ginned, ginning seasons 1954-59, High Plains. Note: the straight lines represent the “best-fitting" linear relationships between revenues and volume. They were fitted statistically by the method of least squares. The statistical estimates associated with each relationship are given in an appendix available from the Department of Agricultural Economics and Sociology, Texas A&M University. Similar procedures were used for total costs of this area and total revenues and total costs of the other areas. what similar for the three smallest volume categories. C0515 Per Bq|e Revenues of these plants were $17.42, $17.72, and $17.98 Single and multipleybattery gin p1 a ms on the High per bale for the less than 2,500, 2,500 to 4,500’ and 4,500 _ and Rolling Plains ginning relatively large volumes of to 6,500-bale categories, respectively. However, revenues cotton had much lower costs than those wth small vol- of the multiple-battery plants on the High Plains aver- umes, Tables 5’ 6 and 7_ Total Costs per bale of the aged more than those of the singlebattery plants for single-battery gins on the High Plains decreased from every comparable Volume Category‘ $16.49 for plants ginning less than 2,500 bales to $8.41 Ginning revenues were the most important revenue for plants ginning from 10,500 to 12,500 bales. The . source for gin plants. They represented at least 59* per- same pattern is evident for the single-battery plants on cent of total receipts whether one or more gin batteries the Rolling Plains where total costs per bale decreased were operated. from $15.08 for plants ginning less than 2,500 bales to , $12.11 for plants ginning between 6,500 and 8,500 bales. TOTAL GlNNING REVENUES The relationship between total costs per bale and volume ~ (rHgqhl-‘OSANDS OF DOLLARS) also was similar for the multiple-battery plants on the High Plains. Total cost per bale of the multiple-battery plants decreased from $16.66 for plants ginning 4,500 to ISO r- i bales. Costs of these plants then increase slightly to $10.39 per bale for volumes higher than 16,500 bales. The single-battery plants on the High Plains had 6,500 bales to $9.72 for plants ginning 14,500 to 16,500 8o significantly lower total costs per bale for all comparable volume categories. The lowest level of costs for single- l l l l I battery plants, $8.41 per bale, was not attained by any O multiple-battery plants. O 2 4 6 8' IO SG;NNED Nearly half of the total costs at gins on the Plains Figure 3. Total ginning revenues per ginning season related to the bales of cotton ginned, ginning seasons 1958-59, Rolling Plains. 10 portant component of direct costs for all volume cate- were found to be direct costs. Labor was the most im- Linn. smums cosrs _ I-IOUSANDS or ootuuas) _g 4o - . 1T Q Q ‘I Q0 e0 Q o o /"°" f .180 — Q~ a? A Q 0Q ?r O Qré Q s’ ea” <->° _ ;;|2o - ° is 9° ~ ' - smsu: em BATTERY PLANTS < so _ o MULTIPLE em BATTERY PLANTS o I I I I I I I .I I I 0 2 4 s a l2 l4 I6 I8 20 22 glories except one, representing between 52 and 59 per- g nt of direct costs. NALYSIS OF ACCOUNTING REVENUES AND i OSTS FOR THE LOWER RIO GRANDE VALLEY h’ Revenues and costs varied with volume at gins in the ' wer Rio Grande Valley in a manner similar to those . bound in the High and Rolling Plains analysis. Total evenues per bale were relatively constant for most of p e gins regardless of the volume ginned. Total costs ' _i- bale decreased significantly as the number of bales increased. There were significant differences between revenues u r bale at gin plants on the High and Rolling Plains and ' lose in the Lower Rio Grande Valley. The Valley plants received greater total revenues per bale than the northern lants, largely because they charged more for ginning irvices. However, gin plants in the Lower Rio Grande 5 alley had greater total costs per bale for all comparable olume categories than plants on the High and Rolling t’ ains. * It may be noted that the Lower Rio Grande Valley g ‘glysis included no multiple-battery gin plants. Since ords of only 11 Valley gin plants were available, it 'd not seem advisable to attempt drawing conclusions om such a small data base.“ Many of the plants in the i: wer Rio Grande Valley ginned much smaller volumes n those analyzed for’ the High Plains. Thus, fewer jolume groupings and smaller tables are involved in this = alysis than the one for the High Plains. ievenue and cost figures for these multiple-battery giants are presented in an Appendix available from the 1 epartment of Agricultural Economics and Sociology, Texas A&M University. BALES OF COTTON GINNEO (THOUSANDS) Figure 4. Total ginning costs per ginning season related to bales of cotton ginned, ginning seasons 1954-59, High Plains. Total Revenues Figure 6 provides an overall perspective of the re- lationship between total revenues and volume in the Lower Rio Grande Valley. A high degree of linear as- sociation between revenues and volumes (relatively little variance about the straight line average) is evident. For all practical purposes, revenues varied proportionately with the volume of cotton ginned. Total Costs Total costs at the gin plants in the Lower Rio Grande Valley varied much more about the average rela- tionships depicted by the straight lines than total reve- nues, Figure 7. Gin plant managers in the Lower Rio Grande Valley, like those on the High and Rolling Plains, TOTAL GINNING COSTS (THOUSANDS OF DOLLARS) I80 — I2O — 6O - 0 I I 1 | m. O 2 4 6 8' lO BALES OF COTTON GINNEO (THOUSANDS) Figure 5. Total ginning costs per ginning season related to bales of cotton ginned, ginning seasons 1958-59, Rolling Plains. ll TOTAL GINNINGIREVENUES (THOUSANDS OF DOLLARS) 24 — I6 — g _ Q .. O 2 4 6 8 BALES OF COTTON GINNED (THOUSANDS) Figure 6. Total ginning revenues per ginning season related to bales of cotton ginned, ginning seasons 1954-59, Lower Rio Grande Valley. can influence their profits significantly only by the way resources are utilized. Revenues Per Bale The revenue similarities and differences cited for the Lower Rio Grande Valley are evident from Table 8. Relatively constant relationships exist between total reve- nues per bale and the volume of cotton ginned for most of the plants studied. However, total revenues per bale were typically greater for gin plants in the Lower Rio Grande Valley than for those on the Plains. Revenues in the Valley varied from $18.71 to $20.05 per bale, while those received by comparable plants on the High Plains and Rolling Plains varied from $17.02 to $17.72 and $17.42 to $18.68 per bale, respectively. TABLE 4. REVENUES RECEIVED PER BALE OF COTTON GINNED RELATED TO THE NUMBER OF BALES GINNED, SINGLE-BATTERY GIN PLANTS, ROLLING PLAINS, GINNING SEASONS 1958-591 Single-battery gins Bales of Sources of revenue cotton ginned . 7°19‘ Cotton- Bagging Other Ginning seed & ties revenue -— —— -— -— Dollars per bale —- — -- -— Less than 2,500 11.34 3.09 1.45 1.54 17.42 2,500 - 4,500 11.60 2.96 1.73 1.43 17.72 4,500 - 6,500 11.40 3.26 1.86 1.46 17.98 6,500 - 8,500 12.00 3.89 2.05 .74 18.68 ‘Revenues of the multiple-battery plants on the Rolling Plairis are given in the Appendix. They are not discussed in the text because of the limited number of plant records analyzed. The components of total revenue per bale were also relatively constant regardless of the volume ginned. Gin- ning revenues represented the main source of revenues for plants in the Lower Rio Grande Valley, accounting for about 65 percent of total receipts per bale. Costs Per Bale Cost similarities and differences for the single-bat- tery gin plants in the Lower Rio Grande Valley are shown in Table 9. Total costs decreased continuously from $19.92 per bale for plants ginning less than 2,500 bales to $13.92 per bale for those ginning between 6,500 and 8,500 bales. Tables 5, 6 and 9 show that total costs‘ per bale were considerably greater in the Lower Rio Grande Valley than on the High and Rolling Plains. For example, total costs per bale at comparable gin plants on the High Plains for the same two categories (less than 2,500 bales and 6,500 to 8,500 bales) were $16.49 and $11.41, respectively. Direct costs averaged 44 percent of total costs for plants in the three largest volume categories in the Lower Rio Grande Valley. Labor was again the main factor and accounted for 40 to 4+5 percent of direct costs. TABLE 3. REVENUE RECEIVED PER BALE OF COTTON GINNED RELATED TO THE NUMBER OF BALES GINNED, SlNGLE- AND MULTlPLE-BAT- TERY GIN PLANTS, HIGH PLAINS GINNING SEASONS 1954-59 Single-battery gins Multiple-battery gins Bales of Sources of revenue T t I Sources of revenue T I n ' d . ° ° . 0t" co on gmne Ginning Cottonseed 8293:‘: Other revenue Ginning Cottonseed 8:93:19 Other Tevellue — — — — — — — — — — — — — —- — Dollars per baIe—-—-————---__-____.._ Less than 2,500 10.71 3.37 2.04 1.17 17.29 2,500 - 4,500 10.90 3.16 1.97 .99 17.02 4,500 - 6,500 10.96 3.45 2.08 1.11 17.60 12.32 2.41 2.16 1.54 18.43 6,500 - 8,500 10.83 3.70 2.11 1.08 17.72 11.35 3.42 2.09 1.66 18.52 8,500 - 10,500 10.54 3.64 2.04 1.34 17.56 11.56 3.42 2.13 1.18 18.29 10,500 - 12,500 10.35 4.07 2.14 .94 17.50 ' 11.17 3.24 2.11 1.33 17.85 12,500 - 14,500 10.89 3.44 2.21 1.10 17.64 14,500 - 16,500 10.97 3.92 2.26 .87 18.02 Greater than 16,500 11.15 3.55 2.10 1.49 18.29 12 5. COMPONENTS OF GINNING COSTS PER BALE RELATED TO THE NUMBER OF BALES GINNED, SINGLE-BATTERY GIN PLANTS, HIGH . PLAINS, GINNING SEASONS 1954-59 Direct costs Indirect costs Total Ton“ direct 8- Qlmled Power 8i TOM‘ Depr. Repairs General indirect mdlre“ Labor . . . Salaries a direct overhead utilities costs c9515 costs — — — — — — — — — — — — — —--— Dollars perbaIe——-—-—--—-——--—--—-—---—---— than 2,500 4.19 1.21 2.21 7.61 3.71 1.73 3.44 8.88 16.49 1500 - 4,500 3.85 1.34 1.94 7.13 2.79 2.36 2.83 7.98 15.11 500 - 6,500 3.26 1.20 1.74 6.20 2.25 2.24 2.33 6.82 13.02 i500 - 8,500 3.00 1.09 1.63 5.72 1.84 1.77 2.08 5.69 11.41 3500 - 10,500 2.79 1.11 1.50 5.40 1.51 1.76 1.64 4.91 10.31 8,500 - 12,500 1.98 1.17 _ 1.32 4.47 1.06 1.65- 1.23 3.94 8.41 Analysis of Model Plant Costs ‘f? RATED CAPACITIES VERSUS PRODUCTIVE CAPACITIES OF MODEL GIN PLANTS The “capacity” of a gin plant means different things 1 ifferent people in the ginning business. Equipment resentatives usually refer to rated capacity as the num- of bales of cotton that a properly-engineered plant 1' gin when a continuous and even flow of seed cotton ijfed to it. Ginners and plant managers, interested in if output of a plant over an extended operating period, ,- r to the output of a properly-engineered plant during inormal operating period where trailer changes, equip- -- t adjustments, minor repairs and cleanup are includ- s,‘ as productive capacity. In the early 1950’s, Weaver and McVey (4-) found ,_ productive capacities averaged 7O percent of rated ‘lcities at High Plains plants and 8O percent of rated ‘lacities at plants in the Lower Rio Grande Valley. ‘me experts today feel new plants are considerably more 'cient than ten years ago because of recent technologi- I changes. Furthermore, they doubt whether much f“, erence exists between the efficiency of plants located i" the Plains and in the Valley. New feed control equip- ‘T1 and methods of engineering such as split-stream head systems have increased the efficiency of plants, ially those handling machine-stripped cotton. Grif- and McCaskill (5) found it possible to obtain plant inductive efficiencies of 9O percent or more and by utilizing good engineering, maintenance and manage- ment practices, productive efficiencies of 85 percent or more could be expected. For this study, in which the primary concern was with attainable levels of perform- ance, productive capacities were assumed to be 85 per- cent of their rated capacities for both the Plains and the Valley areas. SOURCES OF DATA FOR MODEL PLANT sruov" Data for the model plant analysis were obtained from different sources. Personal consultations were held with plant managers, equipment company representatives, R.E.A. managers, accountants, construction people and others associated with the cotton ginning industry. Man- agers of 130 plants whose records were analyzed in the accounting study and managers of the R.E.A. coopera- tives whose plants provided electrical power were mailed a questionnaire. Representatives of leading manufac- turers of plant equipment were also contacted either personally or by mail. Consultations held with the plant managers provided information for the framework of the study. Many plants were analyzed and the managers generally told us that the following problems were their most troublesome ones: ( 1) the ordering of equipment components, (2) the types and sizes of equipment components, (3) the degree of correlation between stages of the ginning proc- ess and (4) the stages which limited the capacity of the plant. They explained the size and composition of their 6. COMPONENTS OF GINNING COSTS PER BALE RELATED TO THE NUMBER OF BALES GINNED, SINGLE-BATTERY GIN PLANTS, ROLL- ING PLAINS, GINNING SEASONS 1958-59 Indirect costs h, Direct costs TOM" i s of h 70ml Ton“ direct 8- " Qllmed 15155;» Popfil a Salaries direct Depr. Repairs Genfirag indirect Indlre" .V -. u I I ies costs over ea “s” cosh f _ _ _ — — — ~ — — — — — — -— —- Dollars per bale — — — — — — — — _ _ _ _ _ _ _ " 111511 2,500 3.55 1.54 2.55 7.55 2.95 1.82 2.45 7.23 15,08 _,500 - 4,500 4.50 1.67 1.29 7.46 2.56 1.54 2.78 6.88 14,34 500 - 6,500 4.50 1.52 1.08 7.10 1.73 1.64 2.34 5.71 12.81 3.27 1.54 1.2a 5.09 2.3a 1.34 2.30 5.02 12,11 o - a,5oo l3 TOTAL GINNING COSTS (THOUSANDS OF DOLLARS) I80 — :20 - 60 - 0 | I I I o 2 4 e a BALES OF cotton GINNED ttuousanost Figure 7. Total ginning costs per ginning season related to bales of cotton ginned, ginning seasons 1954-59, Lower Rio Grande Valley. crews, wages paid and the productive capacity of their plants, too. The field representatives of equipment companies provided information relating to the types and sizes of many plants using their company’s equipment. R.E.A. managers gave electrical information, outlin- ing their supply areas, their competitor’s supply areas and the types of data obtainable. Accountants engaged by gin plants gave us the typi- cal depreciation periods being used by most of the mod- ern gin plants. Also, they indicated some of the signifi- cant changes that managers had recently made to show more realistic depreciation periods. Managers whose records were analyzed in the ac- counting study were asked the following questions about their plants and their past operations: TABLE 8. REVENUES RECEIVED PER BALE OF COTTON GINNED RELATED TO THE NUMBER OF BALES GINNED, SINGLE-BATTERY GIN PLANTS, LOWER RIO GRANDE VALLEY, GINNING SEASONS, 1954-59 Single battery gins Bales of Sources of revenue cotton ginned Bugging T°1°l - - revenue Gmmng Cottonseed 8. ties other -— — - —- Dollars per bale — — -— -— Less than 2,500 12.75 3.71 1.89 1.48 19.83 2,500 - 4,500 12.70 3.85 1.78 1.72 20.05 4,500 - 6,500 12.62 3.44 1.65 1.58 194.29 6,500 - 8,500 12.30 3.26 1.70 1.45 15.71 (1) Does your gin plant use only electrical power? (2) How many electrical horsepower do you have in your plant? (3) How many kilowatt-hours of electricity did you use and how many flat bales of cotton did you gin in the 1958-59, 1959-60, 1960-61 and 1961- 62 harvesting seasons? (4) How many bales of cotton did you normally gin during 24 hour periods of continuous oper- ations in the 1958-59, 1959-60, 1960-61 and 1961-62 harvesting seasons? Also, what was the maximum number of bales you ginned dur- ing 24-hour periods of those seasons? (5) When did you gin your first bale of cotton, start employing two shifts of labor and gin your last bale of cotton in the 1958-59, 1959- 60, 1960-61 and 1961-62 harvesting seasons? (6) How many gin plant employees work for you on a year-around basis? How many of these employees are ginners? Thirty-five plant managers completed this survey form and returned it. Their returns provided part of the data with which the labor and electricity relationships were estimated. TABLE 7. COMPONENTS OF GINNING COSTS PER BALE RELATED TO THE NUMBER OF BALES GINNED, MULTIPLE-BATTERY GIN PLANTS, HIGH PLAINS, GINNING SEASONS 1954-59 Direct costs Indirect costs Ton“ B0195 0f Total Total dire“ 8‘ ¢°1I°|1 Qllmed Labor h‘??? a Salaries direct Depr. Repairs General indirect lndlrecl utilities “S's overhead costs costs _ _ _ _ _ — — — — — — — — —--— Dollars perbaIe—-————---_--—_____ 4,500 - 6,500 4.62 1.45 1.93 8.00 3.51 2.56 2.59 8.66 16.66 6,500 - 8,500 3.95 1.30 1.61 6.86 3.25 2.33 2.87 8.45 15.31 8,500 - 10,500 3.33 1.27 1.50 6.10 2.69 p 2.34 2.27 7.30 13.40 10,500 - 12,500 3.25 1.18 1.38 5.81 2.31 2.22 2.23 6.76 12.57 12,500 - 14,500 3.05 1.26 1.32 5.63 1.94 2.03 1.92 5.89 11.52 14,500 - 16,500 2.75 .87 1.08 4.70 1.92 1.48 1.62 5.02 9.72 Greater than 16,500 2.86 .95 1.33 5.14 1.98 1.54 1.73 5.25 10.39 14 TABLE 9 COMPONENTS OF GINNING COSTS PER BALE RELATED TO THE NUMBER OF BALES GINNED, SINGLE-BATTERY GIN PLANTS, LOWER I RIO GRANDE VALLEY, GINNING SEASONS 1954-59 Direct costs Indirect costs Total ~f . .. . ‘.".'.i.‘.'...‘." ' d °W ' . G I T t I cotton Qmne Labor ummes Salaries 7 its? Depr. Repmrs ovglfilgd inczlzd cos“ _ _ _ _ _ _ _ _ _ _ _ _ _ ---— Dollars perbale-————-—-—-——--—-——--————-— Less than 2,500 3.75 1.52 4.10 9.37 4.97 1.36 4.22 10.55 19.92 2,500 - 4,500 3.24 1.20 3.47 7.91 4.73 1.82 3.79 10.34 18.25 4 500 - 6,500 2.99 1.02 2.62 6.63 3.88 1.30 3.18 8.36 14.99 3.63 1.20 2.97 7.80 13.92 6,500 - 8,500 2.79 .98 2.35 6.12 A questionnaire was also mailed t0 the managers of the electrical companies providing electrical service for the 130 plants analyzed in the accounting study. From them, the monthly consumption of electricity by specific plants in the 1958-61 harvesting seasons was obtained. Sales and engineering representatives of the leading manufacturers of plant equipment were also contacted and the following questions were asked: (1) What components of equipment would you recommend for gin plants with productive ca- pacities of 8, 10 and 12 bales per hour where it takes 1,500 pounds of seed cotton to make a 500-pound bale? (2) What components of equipment would you recommend for gin plants with productive ca- pacities of 8, 10 and 12 bales per hour where it takes 2,000 pounds of seed cotton to make a 500-pound bale? (3) What are your installed prices of each set of equipment components? METHOD OF ANALYSIS FOR MODEL PLANT STUDY Classification of Model Plant Costs Costs of the model plants were divided into two major cost categories: variable costs and fixed costs. Labor, electricity, drying fuel, bagging and ties7 and re- pairs were classified as variable costs; depreciation, op- portunity costs, management and general overhead as fixed costs. Cost components of the first category vary significantly with volume, while cost components of the secorid generally are relatively constant regardless of volume for a given size of gin. Managers’ salaries may be one exception. Some managers are now receiving percentages of their plants’ net margins. ’It may seem that the-re is an inconsistency between the accounting study and the model plant study since bagging and ties (net) were previously considered as a source of revenue. But gin plant managers over the years have bought bagging and ties at one price and resold them to farmers at a relatively constant markup. Thus, bagging and ties generally have been a source of net revenue to gin plants, and the records analyzed in the accounting study reflected this. METHODS OF ESTIMATING MODEL PLANT COSTS The estimation of model plant costs involved many different sources of information and types of analyses. This was especially so for labor, electricity and deprecia- tion where it was possible to obtain accurate and detailed cost information. Labor costs were estimated in two different ways, Option I and Option II. The first option represents the conventional way by which most analysts have estimated labor costs of gin plants over the years. It was assumed that labor could be purchased as needed. As a result, labor costs are the quotient of the hourly costs of the crew and the hourly productive capacity of the plant. On the basis of the survey made, it seems that Op- tion I may be an outdated way of estimating labor costs. Some plant managers have found, especially on the Plains, that they cannot keep full crews intact this way. If laborers are not paid during the occasional long pe- riods when seed cotton is not available for ginning, they move on to other jobs. A number of managers have overcome this labor problem by paying their employees for 8 hours a day (for the normal workweek) regardless of the availability of seed cotton. The costs of this guar- antee are reflected in Option II. For this option, labor costs were calculated on the basis of a 40-hour workweek throughout the harvesting season. Several sources of information were used to calcu- late labor costs for Option II. First, the average length of the harvesting season and the number of crews em- ployed each period of the harvesting season were calcu- lated from responses of gin plant managers. The har- vesting season was divided into three periods according to the number of shifts of labor utilized: starting period —one shift of labor, full-swing period——two shifts of labor and cleanup period——one shift of labor. Second, the responses of the electrical companies were used to estimate the amount of cotton that would be ginned in each of the three seasonal periods for plants on the High Plains, Rolling Plains and in the Lower Rio Grande Val- ley. Then labor costs were calculated for Options I and II, and the greatest costs were selected for each harvest- 15 TABLE 10. SPECIFIED WAGE RATES AND NORMAL CREWS FOR MODEL GIN PLANTS, PRODUCTIVE CAPACITIES OF 8, 1O AND 12 BALES PER HOUR. Wage rate Bales per hour Type of labor per hour 8 10 12 Dollars Men Men Men Ginners 1.75 1 1 'l Ginner's helper 1.50 1 1 2 Pressmen 1.25 3 3 4 Suction and yardmen 1.25 3 4 4 Total 8 9 II ing period and number of operating hours. Labor costs were related to various specified levels of hours of opera- tion per harvesting season. Hours of operation repre-- I sents a comparative basis for different sizes of gin plants. Electricity costs were calculated using the data from the surveys and rate schedules of the electrical compa- nies operating on the Plains and in the Valley. First, strictly on the basis of the survey data, the physical relationships between kilowatt-hours of electricity and volume were estimated. Second, it was assumed that each all-electric model plant would utilize 67 electrical horsepower—as rated on name-plate—per bale of hourly productive capacity, and that each motor would have an electrical efficiency of 85 percent. Third, with these assumptions and the standard assumption of _74~6 kilo- watts per productive electrical horsepower, demand fac- tors were estimated for each model plant. Fourth, elec- trical rate schedules were specified for the Plains and the Valley and the above physical relationships were converted into costs for different levels of operation. Depreciation of the equipment and buildings was calculated using replacement values of the facilities and one set of depreciation periods. Each major component of gin plant equipment, the gin plant building, seed houses, truck scale, office building and office equipment were valued at 1962 cost levels. Then depreciation costs of the equipment were calculated with a depreciation period of 1O years and depreciation costs of the other assets with a depreciation period of 2O years. Costs of repairs, drying fuel, bagging and ties, man- agement, land, office workers and general overhead were estimated separately. Repair and general overhead costs were calculated from the accounting records. Bagging- and-tie costs represent the 1962 prices of packaging ma- terials for BOO-pound flat bales. And the remaining cost components were specified arbitrarily on the basis of general knowledge of the industry. ESTIMATION OF MODEL PLANT COSTS Variable Costs Lab0r——The estimation of labor costs first involved the specification of normal crew sizes and wage rates for 16 TABLE 11. PLANT WAGE RATES, HOURLY WAGE COSTS AND LABOR COSTS PER BALE FOR THREE ALL-ELECTRIC MODEL GIN PLANTS, HOURLY PRODUCTIVE CAPACITIES OF 8, 1O AND 12 BALES PER HOUR Bales per hour 8 1O 12 -—- —fl‘-— Dollars -— —— — \ Plant wage rate per hour 10.75 f" 12.00 14.75 Plant labor costs per hourl 12.17 13.59 16.70 Labor costs per bale” 1.521 1.359 1.392 lWage costs per hour represent the plant wage rate per hour glus an allowance of 3.58 percent for social security taxes (F.l.C.A.) gand 9.64 percent for workman’s compensation. 2Labor costs per bale represent wage costs per hour divided by bales per hour. each model plant. These specifications represent what you might call the typical sizes and types of crews and wage rates being paid in Texas, especially on the High and Rolling Plains, Table 10. A crew of eight men was I I specified for a gin plant with an hourly productive ca- pacity of eight bales: one ginner, one ginner’s helper, three pressmen and three suction and yardmen. On the other hand, the crews of the lO-bale and 12-bale plants differ somewhat, although slightly, from the 8-bale plant. One additional man was specified for the lO-bale plant and three additional men were specified for the 12-bale plant. With these specified crew sizes and wage rates, plant wage rates and hourly plant wage costs were calculated, Table 11. The plant wage rates represent the hourly wage costs of each specified crew. The plant labor costs represent the wage costs plus an allowance for social security costs and workmen’s compensation. Labor costs per bale for the first option, in which it was assumed labor could be hired anytime it was needed, were obtained from the hourly estimates of plant labor costs. (They simply represent the quotient of hourly estimates of plant labor costs and the hourly productive K 1 LOWATT, nouns OF ELECTRICITY (ruou s A u 0s) 1000 - aoo - G eoo - 400 — - SINGLE GIN BATTERY PLANTS 30g _ e MULTIPLE GIN BATTERY PLANTS o 1 1 1 I 1 1 1 1 O 2 4 6 O IO l2 l4 I6 BALES OF COTTON GINNEO (THOUSANDS) Figure 8. Kilowatt-hours of electricity used per ginning season related to bales of cotton ginned, four ginning seasons, 1958-61, High and Rolling Plains. capacity of each model plant.) For the 8, 1O and 12- bale-per-hour model gin plants, labor costs per bale were $1.52, $1.36 and $1.39, respectively. The calculation of meaningful labor costs for the second option necessitated the investigation of several factors: the length of the typical harvesting season, the employment periods of one and two shifts of labor and the relative amounts of cotton ginnings per period. The information from the gin plant survey provided data for estimating the first two factors, and the information from the electrical cooperative survey yielded data for estimat- ing the last. Different characteristics of the harvesting seasons on the Plains and in the Valley are shown in Tables 12 and 13. From this information, labor costs were calculated for each of these seasonal periods for the High Plains, Rolling Plains and Lower Rio Grande Valley. lt was assumed that one crew would be hired for the starting and cleanup periods and two crews for the full-swing period. Labor costs were then calculated for each sea- sonal period for Options l and Il using the information in Tables 11, 12 and 13 and the numbers of bales ginned from Table 14-. The greatest costs for each period in each area were summed to obtain total costs for each volume of output and number of hours operated. Estimates of total and per-bale labor costs for the harvesting season, calculated with the assumptions of Option ll, are in Table 14. The relationship between labor costs per bale and volume then becomes evident. Labor costs per bale decrease as bales ginned increase, rather sizeably for relatively small numbers of operating hours, for each size of gin plant in each area. Labor costs per bale in the Valley are much less than on the Plains for short harvesting seasons. ln addition, labor costs in the Valley quickly stabilize at 800 operating hours. They do not even begin to level off as soon on the Plains. Thus the cost effect of a guaranteed 40-hour workweek at a small number of operating hours is con- siderably less in the Lower Rio Grande Valley than on the High and Rolling Plains. Generally the labor costs of the model plants are significantly less than those of the accounting study for near; comparable volumes. This relationship exists be- TABLE 12. AVERAGE DATES OF THE FIRST AND LAST BALES OF COTTON GINNED AND THE EMPLOYMENT OF TWO SHIFTS OF LABOR, HIGH PLAINS, ROLLING PLAINS, AND THE LOWER RIO GRANDE VALLEY, GIN,NING SEASONS 1958-61 Two shifts of labor Area First bale Start End Last bale High Plains 09/13 10/19 12/26 01/21 110111-19 Plains 09/01 10/20 01/02 02/14 Lower Rio Grande Valley 07/03 07/10 O8/24 O9/O9 KILOWATT HOURS OF ELECTRICITY (THOUSANDS) 600 - 400 - ZOO — o I I I I I O 2 4 6 8 IO BALES OF COTTON GINNED (THOUSANDS) Figure 9. Kilowatt-hours of electricity used per ginning season related to bales of cotton ginned, four ginning seasons, 1958-61, southern area of High Plains and Rolling Plains. tween the model plant and accounting costs for all three areas. The cooperatives analyzed in the accounting study seem considerably less efficient in their labor utilization than the models developed in this study. Electricity—The electrical analysis estimated the re- lationship between kilowatt-hours and volume and the demand factors for each size of model plant. Electrical rate schedules were then specified for each area and these physical relationships were converted into costs. The electricity relationships estimated were plotted using kilowatt-hours and volume, Figures 8, 9 and 10. With these visual references, it was then possible to con- ceive the likely relationships between kilowatt-hours and volume. The estimates obtained clearly point out the fact that cost relationships can be approximated closely by linear functions. The best fitting line-ar functions were estimated for each area by least squares, Table 15. Evaluating these statistical estimates, it may be seen that linear functions explain 74 percent or more of the variance in kilowatt- hours. Also, the constant terms of the estimated func- tions for the High Plains and Rolling Plains are insignif- icant at commonly used levels of significance. Thus these two relationships were re-estimated so that the constant terms would be zero, Table 16. TABLE 13. ELECTRICITY UTILIZATION FOR THE HIGH PLAINS, ROLL- ING PLAINS AND LOWER RIO GRANDE VALLEY RELATED TO SPE- CIFIC HARVESTING PERIODS, GINNING SEASONS 1958-61 Period of the Lower harvesting Rio Grande season High Plains Rolling Plains Valley —-—-——--—Percent—-—-—--_ Starting 15.98 25.41 6.78 Full-swing 76.38 68.32 78.24 Cleanup 7.64 6.27 24.98 17 KILOWATT-HOURS 0F ELECTRICITY (THOUSANDS) picking than by machine-stripping and hand-snapping ,~ techniques. Also, more electricity was used per bale on the High Plains where much irrigated cotton is grown 6C0 '- than on the Rolling Plains where little irrigated cotton is grown. The number of connected electrical horsepower, pro- 4C0 ductive electrical horsepower andT-akilowatts of demand 2G0 capacity per hour and an average connected gin load (name-plate horsepower) of 67 horsepower for each bale of ginning capacity per hour; (2) productive electrical horsepower was derived from connected electrical horse- Q l l ’ i J power using an efficiency factor of 85 percent; (3) kilo- o 2 4 6 a watts of demand represent the product of produc- BALES QF QQTTQN G|NNED tive electrical horsepower and a kilowatt factor of .746. ' ( THOUSANDS) Demand factors for gin plants with productive capacities I Figure 10. Kilowatt-hours of electricity used per ginning season related to bales of cotton ginned, four ginning seasons, 1958-61, Lower Rio Grande Valley. These estimated relationships show that each addi- tional bale required 41.2 additional kilowatt-hours in the Lower Rio Grande Valley and 52.9 additional kilowatt- hours on the High Plains. Less electricity was used in the first case than in the second because, as mentioned before, less trash is harvested by machine and by hand- were estimated next. The following assumptions were necessary to make these estimates: (1) connected elec- trical horsepower represents the product of productive of 8, 1O and 12 bales per hour are 340, 425 and 510 kilowatts, respectively, Table 17. With these estimates it was necessary only to specify electricity rates to determine electricity costs. This was difficult since there are different electrical rates through- The National Electric Rate Book, which gives the rates of each private and public utility out the same area. operating in urban areas of Texas, was compared to the rates of each electrical cooperative serving gin plants on TABLE 14. LABOR COSTS FOR THREE ALL-ELECTRIC MODEL GIN PLANTS UNDER OPTION ll, HOURLY PRODUCTIVE CAPACITIES OF 8, 10 AND 12 BALES, HIGH PLAINS, ROLLING PLAINS AND LOWER RIO GRANDE VALLEYI Hourly productive capacity of gin plant in bales per hour Hours _ot 8 1° 12 operation __ per season? Bales Total Costs per Bales Total Costs per Bales Total Costs per ginned costs (S) bale (S) ginned costs (S) bale (S) ginned costs (S) bale (S) High Plains: 400 3,200 13,840 4.32 4,000 15,454 3.86 4,800 18,990 3.96 600 4,800 13,840 2.88 6,000 15,454 2.58 7,200 18,990 2.64 800 6,400 13,840 2.16 8,000 15,454 1.93 9,600 18,990 1.98 1,000 8,000 13,840 1.73 10,000 15,454 1.54 12,000 18,990 1.58 1,200 9,600 15,535 1.62 12,000 17,349 1.45 14,400 21,322 1.48 1,400 11,200 17,611 1.57 14,000 19,669 1.40 16,800 24,176 1.44 1,600 12,800 19,845 1.55 16,000 22,180 1.39 19,200 27,262 1.42 Rolling Plains: 400 3,200 16,760 5.24 4,000 18,715 4.68 4,800 22,998 4.79 600 ‘4,800 16,760 ' 3.49 6,000 18,715 3.12 7,200 22,998 3.19 800 6,400 16,760 2.62 8,000 18,715 2.34 9,600 22,998 2.40 1,000 8,000 16,760 2.10 10,000 18,715 1.87 12,000 22,998 1.92 1,200 9,600 17,062 1.78 12,000 19,054 1.59 14,400 23,415 1.63 1,400 11,200 19,027 1.70 14,000 21,251 1.52 16,800 26,118 1.55 1,600 12,800 21,308 1.66 16,000 23,798 1.49 19,200 29,249 1.52 Lower Rio Grande Valley: 400 3,200 7,962 2.49 4,000 8,891 2.22 4,800 10,926 2.28 600 4,800 8,578 1.79 6,000 9,579 1.60 7,200 11,773 1.64 800 6,400 10,708 1.67 8,000 11,959 1.49 9,600 14,699 1.53 1,000 8,000 13,385 1.67 10,000 14,945 - 1.49 12,000 18,375 1.53 1,200 9,600 16,061 1.67 12,000 17,939 1.49 14,400 22,049 1.53 ‘Labor costs include an allowance for social security taxes (F.I.C.A.) and workmen’s compensation. Social security taxes were calculated at a rate of 3.58 percent of wage costs for annual salaries of $4,800 or less and workmen’s compensation at a rate of 9.64 percent of wage costs. fHours of operation per season were assumed to include a 15 percent allowance for down time. The minimum and maximum number of oper- ating hours were specified arbitrarily. 18 4 . f: TABLE 15. STATISTICAL ESTIMATES OF REGRESSION EQUATIONS FOR ELECTRICITY, KILOWATT-HOURS OF ELECTRICITY USED RELATED TO BALES ,- OF COTTON GINNED, K I a —l— bV, HIGH PLAINS, ROLLING PLAINS, AND LOWER RIO GRANDE VALLEYl Number Area Estimated regression of coefficients and their Standard error of the functions Fraction of variance explaineda observations standard errors‘, S N g a b f“ f High Plains 4s - 4,648‘ 53.396 .793 77,222 7 (36,226) (4.10) g Rolling Plains 24 -—13,99O4 49.053 .741 43,325 . (33,821) (6.00) I Lower Rio q, Grancle Valley 14 39,725 41.222 .927 24,214 l‘. (15,271) (12.9) ‘Each regression coefficient was estimated using moments about the means of the variables. zThe standard error of each regression coefficient is listed below it in parenthesis. , i, “The fraction of the variance explained and the standard error of the function were adjusted for degrees of freedom lost in the analysis. ‘Not statistically significant from zero at commonly used levels of significance. "j the Plains and in the Lower Rio Grande Valley. An analysis of these rates and consultations with electricity experts were the bases for the electrical rate schedules ‘l. given in Tables 18 and 19. g Using the electrical rates, electricity costs were cal- culated for each model plant and various levels. of opera- tion, Tables 20, 21 and 22. Electricity costs per bale are slightly higher than a dollar a bale on the High Plains and are around $.90 a bale on the Rolling Plains. For the Lower Rio Grande Valley, electrical costs per bale i; decrease as volume increases for each size of model plant. “ These costs vary from a maximum of $.99 per bale for ,_ the smallest volume of the smallest model plant to $.72 for the largest volume of the largest plant. I Drying F uel—The costs of drying fuel depend on many factors in addition to volume. Wanjura (6) esti- mated an air conveyance drying relationship for seed ' cotton which has seven predictors. With his equation, drying costs can be predicted quite accurately for various values of the predictors. L Recent studies of moisture control systems indicate that significant cost-reducing technologies soon will be I: available. Neitzel (7) reported at a Cotton Research Marketing Clinic that gas consumption for drying pur- i poses may be decreased significantly with new moisture ¢ control systems. Drying fuel costs were thus assumed to be $.30 per bale. Several fuel authorities regarded this as a reason- VTABBLE 16. STATISTICAL ESTIMATES OF REGRESSION EQUATIONS i“ FOR ELECTRICITY, KILOWATT HOURS OF ELECTRICITY USED RELATED g- \ TO BALES OF COTTON GINNED, K ‘I- c V, HIGH PLAINS AND ROLL- me PLAINS‘ Number of Estimated coefficient Area observations of volume N c High Plains 4s 52.897 t’ Rolling Plains 24 46.656 ‘Each regression coefficient was estimated using moments about the origin. Thus the constant terms were forced to be zero. able estimate of drying fuel costs for gin plants, especially those using Butane. Where natural gas is available, costs of drying fuel may be less than $.10 per bale. Bagging and Ties—Differences exist among the types of bagging and ties used throughout Texas. Most of the cotton ginned on the Plains is packaged in close- weave jute bagging (approximately 12 pounds per pat- tern) held in place by six metal bands. Bagging costs for this type of packaging have averaged about $2.35 per pattern, ties included. Valley ginners may use either open or close-weave jute bagging. The open-weave jute bagging costs approximately $2.28 per pattern, ties in- cluded. For this study, $2.30 per bale was used for bagging and tie costs in the Valley and $2.35 on the Plains. Repairs (Parts and Lab0r)—Gin plant repair costs are difficult to estimate because of their complexity. Accounting costs represent one way of obtaining On the basis of the accounting costs of Part I, repaircosts averaged $2.11 per bale for the High Plains, $1.57 per bale for the Rolling Plains and $1.47 per bale for the Lower Rio Grande Valley. These averages were used as estimates of repair costs for each of the respective areas in this study. some reliable estimates of repair costs. Fixed Costs Depreciation—Estimation of depreciation costs in- volved selecting the system of equipment components for TABLE 17. CONNECTED AND PRODUCTIVE ELECTRICAL HORSEPOWER AND DEMAND FACTORS FOR ALL-ELECTRIC MODEL GIN PLANTS WITH PRODUCTIVE CAPACITIES OF 8, 1O AND 12 BALES PER HOUR Bales per hour 8 10 12 Connected electrical horsepower 536 670 804 Productive electrical horsepower 456 570 684 Kilowatts of demand (KW) 340.176 425.220 510.264 19 TABLE 18. ELECTRICAL RATE SCHEDULE FOR MODEL GIN PLANTS, HIGH PLAINS AND ROLLING PLAINS‘ Minimum electrical bill for harvesting season Energy charge for harvesting season 1st 100 KWH at 5.5¢ Next 200 KWH at 4.0¢ Next 800 KWH at 3.7¢ More than 1,100 KWH at 1.9¢ $9.00 per kilowatt of demand ‘No discount for prompt payment was specified for the Plains areas because either no discount is generally made or it is relatively small, (approximately 2 percent). the model plants; getting current cost information from the equipment companies; obtaining costs of other equip- ment and buildings; and spreading costs of the equip- ment and buildings over depreciation periods. Specifi- cation of the equipment components was the most diffi- cult task since many different types and makes of equip- ment are utilized in the plants. To make reasonable equipment and building speci- fications, a personal survey was made of a large number of modern plants in Texas. This survey showed that most of the new plants operating in Texas, especially on the Plains, were using two stages of drying, bur ma- chines, two stages of lint cleaning and the other equip- ment listed in Table 23. Until several years ago this set of equipment com- ponents was utilized mainly for ginning roughly harvest- ed seed cotton. Today it is commonly used even in areas like the Lower Rio Grande Valley, because many of the farmers now salvage the cotton lost in normal harvestings Since the types and forms of precleaning and drying . ‘_ equipment differ considerably, all equipment components were grouped and called “receiving and preparatory equipment for ginning.” Representatives of the leading equipment companies were then approached, either per- sonally or by mail, and asked for their 1962 equipment prices. ‘Statistics on cotton gin equipment for the 1962 harvesting season showed that 67, 62 and 64 percent of the Texas gin plants in Federal Crop Reporting District No. 10, which includes the Lower Rio Grande Valley, used two stages of drying, bur machines and two stages of lint cleaning. Costs of complementary buildings and equipment were estimated from accounting data and the construction prices supplied by one Lubbock firm specializing in gin plant buildings. All equipment and building costs were then compiled and averaged for each size of plant and set of equipment components, Tables 24, 25 and 26. Depreciation costs were calculated from the replace- ment values using two depreciation periods and the straight-line method. The depreciation periods were 10 years for the gin plant equipment and 2O years for the other equipment and buildings. j" Replacement costs of 8, 10 and 12-bale-per-hour plants, using this method, are $211,656, $243,695 and $272,788, respectively, Tables 24, 25 and 26. These costs represent mainly the costs of gin plant equipment which are slightly less than 8O percent of total costs. Spreading these replacement costs over the specified periods, annual depreciation costs were $18,897 for the 8-bale plant, $21,725 for the 10-bale plant, and $24,459 for the 12-bale plant. When these costs are expressed relative to plant capacity, annual depreciation costs be- come somewhat greater than $2,000 per bale-hour of pro- ductive capacity: 8-bale—$2,362, 10-bale—$2,174 and 12-bale~$2,038. Opportunity C0sts—Assuming that the land for the model gin plants costs $10,000 and money is worth 6 percent, then 6 percent of $10,000 and 6 percent of one- half of the investment in gin plant equipment, buildings and related equipment represent an estimate of an indi- vidual’s alternative earnings, Table 27. Opportunity costs of an individual who invests in an 8-bale gin plant are $6,950 per year. Costs are approximately $900 greater for each additional 2 bales of capacity. Costs for 10 and 12-bale plants are $7,911 and $8,783, respec- tively. Management and Office W0rkers—The manager of a gin plant is the person who determines largely the success of the venture. Managers’ salaries vary consid- erably among different industries and also within an in- dustry such as cotton ginning. Managers’ salaries each harvesting year were speci- fied to be $6,000, $7,200 and $8,400‘ for gin plants with TABLE 19. ELECTRICAL RATE SCHEDULE FOR MODEL GIN PLANTS, LOWER RIO GRANDE VALLEY Gross monthly rate Discount for prompt payment Minimum electrical bill for harvesting season Demand charge $2.22 each for the first 50 kilowatts of demand $1.66 each for all additional kilowatts of demand Plus energy charge 4.44¢ for 1st 100 KWH 3.33¢ for next 1,000 KWH 2.22¢ for next 10,000 KWH 1.66¢ for more than 11,100 KWH 10% of the gross bill $6.66 per kilowatt of demand 20 BLE 20. ELECTRICAL POWER COSTS FOR THREE ALL-ELECTRICAL MODEL GIN PLANTS, HOURLY PRODUCTIVE CAPACITIES OF 8, 10 AND 12 _ BALES, HIGH PLAINSI Hourly productive capacity of gin plant in bales per hour 8 10 12 season Bales Total Costs per Bales Total Costs per Bales Total Costs per l ginned costs ($) bale ($) ginned costs ($) bale ($) ginned costs ($) bale ($) 400 3,200 3,238 1.01 4,000 4,042 1.01 4,800 4,846 1.01 600 4,800 4,846 1.01 6,000 6,052 1.01 7,200 7,258 1.01 800 6,400 6,454 1.01 8,000 8,063 1.01 9,600 9,671 1.01 1,000 8,000 8,063 1.01 10,000 10,073 1.01 12,000 12,083 1.01 1,200 9,600 9,671 1.01 12,000 12,083 1.01 14,400 14,495 1.01 1,400 11,200 11,279 1.01 14,000 14,093 1.01 16,800 16,907 1.01 1,600 12,800 12,887 1.01 16,000 16,103 1.01_ 19,200 19,320 1.01 _ e electricity costs in this table were calculated using K : 52.897V and the specified electrical rate schedule for the High Plains. " ours of operation per season were assumed to include a 15 percent allowance for down time. The minimum and maximum numbers of oper- *- ing hours were specified arbitrarily. roductive capacities of 8, 10 and 12 bales per hour, all categories of overhead costs except insurance. Insur- _ pectively. This includes an allowance for workmen’s ance costs were calculated from assumed rates for fire, ompensation and social security. lightning and extended coverage and the replacement . vt fthf'l't'. It was assumed necessary to have one office worker nos s 0 e am 1 les Tor bookkeeping and weighing duties, employed at $60 Insurance costs vary considerably even among mod- "onal weeks. This office worker would be employed for factors. One factor is the distance from the plant to an 3 weeks on the High Plains, 24< weeks on the Rolling available water supply. A rate of $1.25 per $100 of in- lains and 12 weeks in the Lower Rio Grande Valley. sured coverage on 90 percent of the average investment alaries of office workers on the basis of these assump- excluding land was assumed for the Plains and $.80 per 'ons were $1,359, $1,630 and $815 for the High Plains, $100 of insured coverage was assumed for the Valley. I olling Plains and Lower Rio Grande Valley, respective- Insurance costs were $1,190, $1,371 and $1,533 for 8, A 10 and 12-bale-per-hour plants on the Plains and $762, $877 and $981 for these plants in the Valley, respectively. An allowance for gin yard insurance and general liability insurance is included in this set of figures. General Overhead—General overhead costs repre- nt small costs such as insurance, taxes, licenses, bale nalties, auditing fees, legal fees, travel, communication, nual meetings, banking and donations. Most of these The remaining components of general overhead costs penses tend to vary considerably from plant to plant were estimated from a detailed investigation of the ac- aking it necessary to estimate this category of costs counting records and combined as one cost. The median rom accounting records. This approach was used for level of these costs was $7,500 for an 8-bale plant, $10,- _ _ _ _ 000 for a 10-bale plant and $12,500 for a 12-bale plant. . hese figures include an allowance for soclal securlty and s_workmen’s compensation, ~ Thus, estimates of total general overhead costs were ROLLING PLAINSI , Hourly productive capacity of gin plant in bales per hour ours of” a ration Io i l2 season Bales Total Costs per Bales Total Costs per Bales Total Costs per ginned costs ($) bale ($) ginned costs ($) bale ($) ginned costs ($) bale ($) 400 3,200 2,859 .89 4,000 3,568 .89 4,800 4,277 .89 600 4,800 4,277 .89 6,000 5,341 .89 7,200 6,405 .89 800 6,400, 5,696 .89 8,000 7,114 .89 9,600 8,532 .89 1,000 8,000 7,114 .89 10,000 8,887 .89 12,000 10,660 .89 1,200 9,600 8,532 .89 12,000 10,660 .89 14,400 12,787 .89 1,400 11,200 9,951 .89 14,000 12,433 .89 16,800 14,915 .89 l. 1,600 12,800 11,369 .89 16,000 14,206 .89 19,200 17,042 .89 jhe electricity costs in this table were calculated using K r: 46.656V and the specified electrical rate schedule for the Rolling Plains. ours of operation per season were assumed to include a 15 percent allowance for down time. The minimum and maximum number of oper- I ‘n9 hours were specified arbitrarily. 21 r week for the entire harvesting season plus two addi- ern (all steel) gin plants depending upon a number of“) ABLE 21. ELECTRICAL POWER COSTS FOR THREE ALL-ELECTRIC GIN PLANTS, HOURLY PRODUCTIVE CAPACITIES OF 8, 10 AND 12 BALES, l TABLE 22. ELECTRICAL POWER COSTS FOR THREE ALL-ELECTRIC MODEL GIN PLANTS, HOURLY PRODUCTIVE CAPACITIES OF 8, 10 AND 12 BALES, LOWER RIO GRANDE VALLEYI Hourly productive capacity of gin plant in bales per hour Hours ‘of’ 8 1° 12 operation per season Bales Total Costs per Bales Total Costs per Bales Total Costs per ginned costs (S) bale (S) ginned costs (S) bale (S) ginned costs (S) bale (S) 400 3,200 3,165 .99 4,000 3,785 .94 4,800 ":1 4,405 .92 600 4,800 4,151 .86 6,000 5,017 .84 7,200 5,883 .82 800 6,400 5,136 .80 8,000 6,248 .78 9,600 7,361 .77 1,000 8,000 6,122 .76 10,000 7,480 .75 12,000 8,839 .74 1,200 9,600 7,107 .74 12,000 8,712 .73 14,400 10,317 ‘The electrical costs in this table were calculated using 39,725 —(— 41.22V and the specified electrical rate schedule for the Lower Rio Giande Valley. ‘(Hours of operation per season were assumed to include a 15 percent allowance for down time. Twelve hundred hours closely approximates the maximum number of hours a gin plant in the Valley can operate each season. $8,690, $11,371 and $14,033 for the 8, 10 and 12-bale- per-hour plants 0n the Plains and $8,262, $10,877 and $13,481 for the same size plants in the Valley, respec- tively. Total Ginning Costs Per Bale for Options I and II Estimates of each of the variable and fixed cost com- ponents of ginning costs and their economic relationships have been discussed. With these component estimates, an accurate set of comparable estimates are available to calculate total ginning costs per bale for different sizes of model plants, areas of cotton production and numbers of operating hours per season. Furthermore, as a result of the methodology used to calculate these costs, it is possible to relate them all to the same base—-—hours of operation per season—for comparison purposes. Thus, the economic feasibility of one size of gin plant relative to another can be compared for the same number of operating hours. TABLE 23. SYSTEM OF EQUIPMENT COMPONENTS FOR MODEL GIN PLANTS Number of sets Gin plant equipment of equipment Suction system Rock and green boll catcher Airline cleaner Separator Automatic feed, control Tower driers stages Cylinder cleaners Bur machines Stick and green leaf Distributor Extractor feeders Gin stands Lint cleaners Press Bale scale Seed scale and seed handling equipment Bur and trash handling equipment (split) stages -|-l-l-l§-|-l-l-|N,§§_|_|-|_g_g Z2 TABLE 24. GIN EQUIPMENT AND BUILDING COSTS FOR MODEL GIN PLANTS, ALL-ELECTRIC PLANTS, MINIMUM EFFECTIVE CAPACITY OF 8 BALES PER HOUR FOR A NORMAL 24-HOUR OPERATING PERIOD’ 1962 Depreciation Annual costs period depreciation Gin plant equipment (dollars) (years) (dollars) Receiving and preparatory equipment for ginning 73,392 10 7,339 Gin stands 12,462 10 1,246 Lint flue, lint cleaning equipment and condensor 32,082 10 3,208 Press 18,618 10 1,862 Bale scale 918 10 92 Seed scale and seed handling equipment 5,834 10 583 Hull handling equipment 2,036 10 204 Electric motors, electric wiring and auxiliary electrical equipment 20,952 10 2,095 Total costs of gin plant equipment 166,294 16,629 Total depreciation of gin plant equipment Other equipment and buildings Building for gin plant (40’x120’x24’) 15,500 20 775 Concrete slab for gin plant 11,742 20 587 Seed house (20 tons) 2,740 20 137 Truck scale (54'x10’) 4,975 20 249 Office building and equipment 7,405 20 370 Tractor for trailer 3,000 20 150 Total costs of other equipment and buildings 45,362 2,268 Total depreciation of other equipment 8t buildings TOTAL COSTS OF GIN PLANT EQUIPMENT, OTHER EQUIPMENT AND BUILDINGS 211,656 18,897 Total depreciation ‘This set of equipment components and building costs were calculated for the equipment listed in Table 26. TABLE 25. GIN EQUIPMENT AND BUILDING COSTS FOR MODEL GIN PLANTS, ALL-ELECTRIC PLANTS, MINIMUM EFFECTIVE CAPACITY OF 10 BALES PER HOUR FOR A NORMAL 24-HOUR OPERATING PERIOD‘ TABLE 26. GIN EQUIPMENT AND BUILDING COSTS FOR MODEL GIN PLANT, ALL-ELECTRIC PLANT, MINIMUM EFFECTIVE CAPACITY OF 12 BALES PER HOUR FOR A NORMAL 24-HOUR OPERATING PERIOD‘ 1962 Depreciation Annual costs period depreciation 1962 Depreciation Annual costs period depreciation Gin plant equipment (dollars) (years) (dollars) Gin plant equipment (dollars) (years) (dollars) Receiving and preparatory Receiving and preparatory equipment for ginning 84,670 10 8,467 equipment for ginning 93,389 1O 9,339 Gin stands 15,366 10 1,537 Gin stands 19,934 10 1,993 Lint flue, lint cleaning Lint flue, lint cleaning equipme-t and condensor 36,008 10 3,601 equipment and condensor 42,084 10 4,208 Press 18,908 10 1,891 Press 19,262 10 1,926 Bale scale 919 10 92 Bale scale 891 10 89 Seed scale and seed handling Seed scale and seed handling equipment 6,370 10 637 equipment g 6,842 10 684 Hull handling equipment 2,342 10 234 Hull handling equipment 2,580 1O 258 Electric motors, electric wiring and Electric motors, electric wiring and auxiliary electrical equipment 26,190 10 2,619 auxiliary electrical equipment 31,428 10 3,143 Total cost of gin _ “ii ‘i’- plant equipment 190,773 19,078 Tvwl w“ of 9m __i _____ Plant equipment 216,410 21,640 Total T°IPI _ depreciation deplecmlm“ of gin °l 9i" PM," plant equipme," equipment Other equipment and buildings Other equipment and buildings Building for gin plant Building for gin plant (54’x120’x24’) 18,700 20 935 (60’x120'x24') 19,800 20 990 Concrete slab for gin plant 15,252 20 763 Concrete slab for gin plant 16,758 20 838 Seed house (30 tons) 3,590 20 180 Seed house (40 tons) 4,440 20 222 Truck scale (54’x10’) 4,975 20 249 Truck scale (54’x10’) 4,975 20 249 Office buildings and office Office buildings and office equipme tt 7,405 20 370 equipment 7,405 20 370 Tractor for trailer 3,000 20 150 Tractor for trailer 3,000 20 150 Total cost of other equipment Total cost of other equipment and buildings 52,922 2,647 and buildings 56,378 2,819 Total Total depreciation depreciation of other of other equipment equipment 8. buildings 8. buildings TOTAL COSTS 243,695 21,725 TQ-[AL C0515 0|: G|N pLANT T<>*_<=l_ EQUIPMENT, omen EQUIPMENT °I°P|'°¢|°l'°" AND BUILDINGS 272,788 24,459 Total lThis set of equipment components and building costs were calculated for the equipment listed in Table 26. From the estimates of total ginning costs presented in Tables 28, 29 and 30, several different economic relationships are apparent. The most noticeable and important one is the short-run economies associated with volume. Ginning costs per bale decrease as bales ginned (and hours of operation) increase for plants on the High Plains, Rolling Plains and in the Lower Rio Grande Valley. For the High and Rolling Plains total costs de- creased by decrements between nine and ten dollars per bale for Option 1. Colstichanges of greater magnitudes are associated with Option II because of the influence of the 40-hour minimum workweek at relatively small sea- sonal volumes. These cost changes vary from $11.45 to $12.60 with hours of seasonal operation varying from . 400 to 1,600 hours on the High Plains and from $12.23 to $13.46 on the Rolling Plains. depreciation lThis set of equipment components and building costs were calculated for the equipment listed in Table 26. TABLE 27. OPPORTUNITY COST ALLOWANCES FOR INVESTMENTS IN GIN PLANT EQUIPMENT, OTHER EQUIPMENT AND BUILDINGS, AND LAND, THREE ALL-ELECTRIC MODEL GIN PLANTS, HOURLY PRODUC- TIVE CAPACITIES OF 8, 10 AND 12 BALES Bales per hour 8 10 12 — -— -— Dollars per year — — — Gin plant equipmentl 4,989 5,723 6,492 Other equipment and buildingsl 1,361 1,588 1,691 Land” 600 600 600 Total allowance for opportunity cost 6,950 7,911 8,783 ‘Opportunity costs for gin plant equipment, buildings and related equipment represent 6 percent of the average lifetime investment in these facilities. zOpportunity costs for land represent 6 percent of the specified land investment. 23 Similar comparisons can be made for the Lower workweek on costs is less than $.58 per bale for an oper- Rio Grande Valley over a smaller range of operating ating season of 1,000 hours on the Rolling Plains and is hours. Again, significant short-run economies are as- even less for the High Plains and the Lower Rio Grande sociated with volume. Costs per bale decrease by decre- Valley. ments between $7.98 and $8.78 for Option I and between $8.73 and $9.60 for Option II. There are relatively small cost differences between plants, most of them were probably interested in building Options I and II. The effect of a 4i0-hour minimum the type and size plant which would minimize long-run Many gin plant managers on the High Plains have- built plants during recent years._ At the time they built g TABLE 28. TOTAL GINNING COSTS PER BALE FOR THREE ALL-ELECTRIC MODEL GIN PLANTS RELATED TO HOURS OF OPERATION, HOURLY I PRODUCTIVE CAPACITIES OF 8, 10 AND 12 BALES, HIGH PLAINS é Hourly productive capacity of gin plant in bales per hour Hours 'of‘ 3 1O 12 Ezsrggzsnon Ba|es Total costs per bale ($) Bq|es Total costs per bale ($1 Bdes Total costs per bale (S) sinned Option | Option ll sinned option | option ll sinned opfion | Qpfion || 400 3,200 20.39 23.19 4,000 19.52 22.02 4,800 19.04 21.61- 600 4,800 16.02 17.38 6,000 15.40 16.62 7,200 15.09 16.34 800 6,400 13.84 14.48 8,000 13.33 13.90 9,600 13.10 13.69 1,000 8,000 12.53 12.74 10,000 12.09 12.27 12,000 11.91 12.10 1,200 9,600 11.65 11.75 12,000 11.26 11.35 14,400 11.12 11.21 1,400 11,200 11.04 11.09 14,000 10.66 10.70 16,800 10.56 10.61 1,600 12,800 10.56 10.59 16,000 10.22 10.25 19,200 10.13 10.16 ‘Hours of operation per season were assumed to include a 15 percent allowance for down time. The minimum and maximum number of oper- ating hours were specified arbitrarily. TABLE 29. TOTAL GINNING COSTS PER BALE FOR THREE ALL-ELECTRIC MODEL GIN PLANTS RELATED TO HOURS OF OPERATION, HOURLY - PRODUCTION CAPACITIES OF 8, 10 AND 12 BALES, ROLLING PLAINS Hourly productive capacity of gin plant in bales per hour Hours of‘ 8 10 12 Ezfrggtsnon Bah; Total costs per bale (S) Bdes Ba|es Total costs per bale ($1 sinned option I Option ll sinned Option | Option ll sinned Option I Option ll 400 3,200 19.81 23.53 4,000 18.93 22.25 4,800 18.44 21.84 600 4,800 15.42 17.39 6,000 14.78 16.54 7,200 14.46 16.26 800 6,400 13.22 14.32 8,000 12.70 13.68 9,600 12.46 13.47 1,000 8,000 11.90 12.48 10,000 11.45 11.96 12,000 11.28 11,81 1,200 9,600 11.01 11.27 12,000 10.63 10.86 14,400 10.48 10,72 1,400 11,200 10.40 10.58 14,000 10.02 10.18 16,800 9.92 10.08 1,600 12,800 9.93 10.07 16,000 9.58 9.71 19,200 9.48 9,61 ‘Hours of operation per season were assumed to include a 15 percent allowance for down time. The minimum and maximum number of oper- ating hours were specified arbitrarily. TABLE 30. TOTAL GINNING COSTS PER BALE FOR THREE ALL-ELECTRIC MODEL GIN PLANTS RELATED TO HOURS OF OPERATION, HOURLY PRODUCTIVE CAPACITIES OF 8, 1O AND 12 BALES, LOWER RIO GRANDE VALLEY Hourly productive capacity of gin plant in bales per hour Hours of‘ 8 1° ‘l2 ration s: season Bales BPI“ BOIQS T°'°'l “SIS P" P°I° I$I sinned Option I Option || sinned Option I Option || sinned app," | opfion H 400 3,200 19.37 20.34 4,000 18.51 19.36 4,800 18.05 18.94 600 4,800 14.98 15.25 6,000 14.36’ 14.60 7,200 14.05 14.30 800 6,400 12.78 12.93 8,000 12.28 12.41 9,600 12.05 12.19 1,000 8,000 11.46 11.61 10,000 11.03 11.16 12,000 10.86 11.00 1,200 9,600 10.59 10.74 12,000 10.21 10.34 14,400 10.07 10.21 ‘Hours of operation per season were assumed to include a 15 percent allowance for down time. Twelve hundred hours closely approximates the maximum number of hours a gin plant in the Valley can operate each season. 24 . f L GINNING costs _, BALHDOLLARS) nouns or OPERATION \ PER GINNING SEASON —-—oi>rion I 40o --~-oi>rion 2 BALES OF corron GINNED (THOUSANDS) l, Figure l1. Total ginning costs per bale related to bales of cot- ; ginned for four different levels of operating hours per ginning ‘Lon, High Plains. per bale. Long-run planning decisions are difficult g make, especially if a manager has only a limited nount of comparative cost information. _ Considerable planning information which managers ght find useful in their decision-making can be gleaned m the costs presented in Tables 28, 29 and 30. As- l?“ managers on the High Plains are operating plants a average of 1,000 hours per season and guaranteeing i workers a 40-hour workweek during the normal har- ting season, costs per bale would be $12.74, $12.27 d $12.10 for 8, 10 and 12-bale-per-hour plants ginning -'I““ 10,000 and 12,000 bales, respectively. __ Similar comparisons for other levels of seasonal uti- ation demonstrate one economic relationship, Figures 12 and 13. Large 12-bale-per-hour plants can gin Litton cheaper than S-bale-per-hour plants for seasons of ‘ll hours, regardless of the labor option considered. I it the economies of size diminish and approach zero as length of the ginning season increases from 4-00 to 200 hours in the Lower Rio Grande Valley and from 'll to 1,600 hours on the High and Rolling Plains. An gbale-per-hour plant can operate nearly as cheaply as a Z-hale-per-hour plant at all levels of utilization of 1,000 fours, or more. During recent years, those in the cotton ginning in- stry have been concerned about shorter harvesting ons, larger investments in gin plants and increasing i es of equipment obsolescence. Therefore, interest in --i cotton storage for achieving greater seasonal utili- tion of gin plant equipment and significantly decreas- i; ginning costs to the" farmer is evolving. But seed itton storage, even for the relatively short depreciation friods used in this study, is not likely to decrease gin- ‘g costs substantially for the Texas areas analyzed un- 1;; the number of hours typically operated per season _ reases considerably. Many plants on the High Plains "e operated around 800 hours and some even more in TOTAL GINNING COSTS PER BALE (DOLLARS) 24 _ \ ‘\ nouns or OPERATION 22 ' ‘ PER GINNING season 20 F OPTIONI 40° L \ -——-—oi>rion2 ia a l- I6 - i4 _ \\ “' a _ g 00 i2 - m“ I200 '0 — m; I600 O T I l l l I l I l | J o 2 e IO l4 l8 22 BALES OF COTTON GINNED (THOUSANDS) Figure ‘l2. Total ginning costs per bale related to bales of cot- ton ginned for four different levels of operating hours per ginning season, Rolling Plains. a typical season. Thus seed cotton storage is not likely to save these farmers much money in the near future. Most of the older areas of cotton production in Texas have a relatively large number of obsolete gin plants and much excess ginning capacity. Few new plants 'will probably be built in these areas. Most of the old plants will be operated as long as they cover short-run variable costs. Hence, in the short run, seed cotton storage is not likely to decrease overall ginning costs for farmers in these areas either. Comparison of Accounting and Model Plant Costs An evaluation of accounting studies versus model plant studies emphasizes their merits and demerits. On the basis of the accounting study, one might infer that managers should build large plants and utilize them well. But the model plant study indicates that such a conclusion ronu. GINNING cosr PER BALE (DOLLARS) 24 - 22 - _ nouns or OPERATION 2o _ \ °PT'°"' PER GINNING season _ \\\\\ ---- "OPTIONZ 49° ia - l6 - i4 - l2 _ \\ _ ‘o _ I200 A o L I I I l l I l I I A 1 J o 2 e io i4 ia 22 BALES OF COTTON GINNEEHTHOUSANDS) Figure ‘I3. Total ginning costs per bale related to bales of cot- ton ginned for three different levels of operating hours per ginning season, Lower Rio Grande Valley. 25 is loosely stated and not accurate. Large plants of the types and sizes analyzed in this study, for extremely short ginning seasons have significantly lower costs per bale than their smaller counterparts. Otherwise, for seasons typical of those in much of Texas today and possibly in the future, long-run total costs per bale of 12-bale-per- hour and 8-bale-per-hour plants probably will not differ much. References I. Cotton Gin Equipment, 1962, U. S. Department of Agriculture, Agricultural Marketing Service, Cotton Division, Memphis, Ten- nessee. 2. B. C. French, L. L. Sammet, and R. G. Bressler, Economic Effi- ciencies in Plant Operations with Special Reference to the Market- ing of California Pears, Hilgardia, Vol. 24, July, 1956, Univer- sity of California, Berkeley, Calif. 3. W. F. Henry, R. G. Bressler, Jr., and G. E. Frick, Efficiency of Milk Marketing in Connecticut, Storrs Agricultural Experiment Station, Bul. 259, University of Connecticut, June, 1948. 4. Otis T. Weaver and Daniel H. McVey, Using Gin Machinery More Effectively, U.S.D.A., FCS Bul. 7, September, 1955. 5. Clyde A. Griffin and Oliver L. McCaskiII, “Cotton Ginning Power Requirements and Efficiency.” Annual Meeting, American Society of Agricultural Engineers, 1962, Paper No. 62-151. 6. Donald F. Waniura, Herbert E. McLeod, and Thomas H. Gaines, “Air Conveyance Drying Relationships for Seed Cotton," South- west Section Meeting of the American Society of Agricultural Engineers, Lubbock, Texas, April 17-19, 1963. 7. Joe C. Neitzel, Summary-Proceedings of the 1963 Cotton Re- search Clinic Marketing Conference, Atlanta, Ga., April 9-11, 1963, p. 20. Bibliography Covey, Charles D. and Hudson, James F., Cotton Gin Efficiency, As Related to Size, Location and Cotton Production Density in Louisi- ana, Unpublished Bulletin Manuscript, Dept. of Ag. Ec. Louisiana State University, Baton Rouge, Louisiana, 1963. Crumley, Billy B. and Cooper, Maurice R., Cotton Merchandising-— Costs, Practices and Problems, Cotton Economic Research, Uni- versity of Texas and Texas Technological College and USDA, Lubbock. Flege, R. K., Cotton Harvested (1950-59) Texas 8. USA vs. Cotton Consumed in Manufacturing Establishments (Staple Comparison), Special Report, Textile Research Laboratories, Texas Technologi- cal College, Lubbock, February, 1961. 26 Fortenbury, A. J., Charges for Ginning Cotton, USDA, AMS, Marks) ing Research Report No. 120, June, 1956. , . French, B. C., Sammet, L. L. and Bressler, R. G., “Economic Efficie ‘ cies in Plant Operations with Special Reference to the Marke‘ ing of California Pears," Hilgardia, Vol. 24, July 1956, Unive sity of California, Berkeley. Griffith, A. Clyde, and McCaskiII, Oliver L., “Cotton Ginning Requirements and Efficiency,” Annual Meeting, American S ciety of Agricultural Engineers, 196,2, Paper No. 62-151. Neitzel, Joe C., Summary-Proceedings of the 1963 Cotton Researc Clinic Marketing Conference, Atlanta, Georgia, April, 1963. Henry, W. F., Bressler, R. G., Jr., and Frick, C. E., Efficiency of Mil Marketing in Connecticut, Storrs Agricultural Experiment Stati Bulletin 259, University of Connecticut, June, 1948. r Paulson, W. E., Cost and Profit of Ginning Cotton in Texas, Agricultural Experiment Station Bulletin No. 606, January, 1942 College Station, Texas. 1 , Income and Cost Analysis, Texas Agricultural Experime Station Bulletin No. 803, March, 1955, College Station, Texas. Thomsen, F. L., Increasing Returns to Western Region Cotton Produce l Through Better Marketing (mimeographed), 1962. ‘ University of Texas Cotton Economic Research, Area Changes as Re- lated to Texas Cotton Production, Quality and Valuation, R search Report No. 66, 1962, Austin, Texas. , Costs of Harvesting and Processing Cotton from Far K Through the Gin, Research Report No. 61, 1961, Austin, Texas. U. S. Department of Agriculture, Agricultural Marketing Service, Cot ‘l ton Division, Cotton Gin Equipment, 1962, Memphis, Tennessee. U. S. Department of Agriculture, Statistics on Cotton and Related Data,‘ 1920-1956, Statistical Bulletin No. 99, Revised February, 1957 (Washington: U. S. Government Printing Office). , Statistics on Cotton and Related Data, Supplement to Sta-g tistical Bulletin No. 99, October, 1961 (Washington: U. S. Government Printing Office). U. S. Department of Commerce, Bureau of the Census, Cotton Pr j duction in the United States (Washington: U. S. Government Printing Office, 1940). , Cotton Production in the United States (Washington: U. S. Government Printing Office, 1950). , Cotton Production in the United States (Washington: U. S. Government Printing Office, 1961). Waniura, Donald F., McLeod, Herbert E. and Gaines, Thomas H., “Air Conveyance Drying Relationships for Seed Cotton,” Southwest‘ Section Meeting of the American Society of Agricultural Engi- neers, Lubbock, Texas, April, 1963. , Weaver, Otis T. and McVey, Daniel H., Using Gin Machinery Mon. Effectively, USDA, FCS Bulletin 7, September, 1955. ” [Blank Page in Qriginal Bulletin] State-wide Research The Texas Agricultural Experiment Station; is the public agricultural research agency i IAIN surlon Q nn meanness I nu FICLD LAIORATOIIES A eoorzlurme IYATIOIII oi the State oi Texas, and is one oi the parts oi Texas 1861M University. Location oi field research units of the Texas Agricultural Experiment Station and cooperating agencies IN THE MAIN STATION, with headquarters at College Station, are 13 subject- . matter departments, 3 service departments, 3 regulatory services and the administrative staff. Located out in the major agricultural areas of Texas are ‘ 20 substations and 1O field laboratories. In addition, there are 13 cooperating Q R G- I Z N stations owned by other agencies. Cooperating agencies include the Texas l" Forest Service, Game and Fish Commission of Texas, Texas Prison System, 7 U. S. Department oi Agriculture, University of Texas, Texas Technological a College, Texas College of Arts and Industries and the King Ranch. Some A experiments are conducted on farms and ranches and in rural homes. A THE TEXAS STATION is conducting about 4-50 active research projects, grouped s: in 25 programs, which include all phases of agriculture in Texas. Among these are: l Conservation and improvement of soil Beef cattle Conservation and use of water Dairy cattle Grasses and legumes Sheep and goats Grain crops Swine O P E R A o N Cotton and other fiber crops Chickens and turkeys Vegetable crops Animal diseases and parasites Citrus and other subtropical fruits Fish and game Fruits and nuts Farm and ranch engineering Oil seed crops Farm and ranch business Ornamental plants Marketing agricultural products Brush and weeds Rural home economics Insects Rural agricultural economics Plant diseases Two additional programs are maintenance and upkeep, and central services. Research results are carried to Texas farmers, WHQZRItEELWHENImmsflfiffiagggaégdzfnshihfiiglagflz: h dr d f bl h‘ h tr t t it ranchmen and hvmemakw by wlmty agents e33 ieifie$1.3"Zfieweifie;‘ZZeZZeiZTZIZQZSInQTZ _ _ _ l E or serving agriculture. Workers oi the Main Station and specialists of the Texas A gricultura x- and the field units 9i the Texas Agricultural Experi- _ S _ meliil Station seek diligently to iind solutions to these tension ervice P" ems- joclay is league/t 3a jomorrow is regress