Guide Z-124

Pilja Vitale, Richard Heerema, Jay Lilywhite, and Carlos Carpio Ochoa.

College of Agricultural, Consumer and Environmental Sciences, New Mexico State University

Authors: Respectively, Extension Economist, Department of Extension Economics (EE); Extension Pecan Specialist, Extension Plant Sciences; Director of Agricultural Experiment Station; and Department Head of Extension Economics (EE). All from New Mexico State University. (Print-friendly PDF)

^{Photo by Robert Yee. NMSU, 2021.}

Introduction

This study provides sample costs for producing pecans in the Mesilla Valley of New Mexico. While the production practices described here are typical for growing pecans in the region, they may not apply to every situation; therefore, the study is intended as a guide only. Production cost estimates are important as they can help inform production decisions, determine potential returns, prepare budgets, and evaluate production loans. Sample costs and prices for labor, materials, equipment, and custom services are based on current data.

The hypothetical farm operation, production practices, overhead, and calculations are described under the “Assumptions” section. For additional information or an explanation of the calculations used in the study, please contact the Cooperative Extension Service at New Mexico State University in Las Cruces, New Mexico at (575) 646-7577.

Assumptions

Land. This report is based on a pecan farm with 7-8 plots, each approximately 40 acres in size, all located within 5 miles from farm headquarters. In total, the farm encompasses of 300 acres of pecan growing land, which are farmed and managed by the owner.

Trees. The pecan varieties planted in Mesilla Valley are Wichita, Western, and Bradley. However, this study does not specify the varieties used. All orchards will include at least two varieties to ensure adequate pollination. Trees are planted at a spacing of 30’ X 30’ with 48 trees per acre. The lifespan of the pecan tree is assumed to be 100 years. The establishment costs of the orchard are not considered in this study.

Irrigation System. The irrigation system consists of flood irrigation, which is used in most Mesilla Valley farms. Water is delivered to the orchard from the Elephant Butte Irrigation District through canals. Otherwise, farms pump water from a ground source. The pump system lasts 30 years and is considered an improvement to the property.

Water Costs. Water is a combination of canal water and water pumped from a well. Canal water has an assumed cost of $125/acre-foot. However, water charges will vary depending on water rights, power source, well characteristics, and irrigation setup. Applied water for each year is estimated to be 50-acre inches per planted acre. Due to drought conditions, the Elephant Butte Irrigation District, which provides water to the Mesilla Valley, currently supplies only 2-acre feet of canal water (equal to 24 acre-inches) per planted acre. We assume the remaining 26-acre inches of water were supplied by pumping water. The cost of pumping is included in the expenses for the irrigation system and its laborers, as mentioned earlier.

Trees

Cultural practices for producing pecans vary by grower and region. The production practices and inputs used in this study serve only as a sample.

Pruning. Pruning is done to permit sunlight penetration and takes place in January or February using mechanical towers. One-half of the trees are hedged and topped each year, usually in alternating rows, resulting in a hedging and topping cut to one side of every tree adjoining that row. Prunings are placed in the middle of alternate rows by a 9’ brush rake and shredded. The brush removal crew includes the tractor driver and one person on the ground.

Fertilization. Nitrogen (N) fertilizer, such as UAN-32 (liquid fertilizer), is applied at a rate of 100 pounds of N per acre using a fertilizer spreader powered by a 90 HP tractor. This application occurs in March and again in July. Zinc is applied as a foliar spray four times every 2-4 weeks from April through May. Zinc sulfate is mixed with low biuret urea (Urea LB) or potassium nitrate during each application to enhance zinc uptake. The application method is foliar broadcast using a tractor-pulled, Power Take Off (PTO)-driven air-blast sprayer. Producers should check individual fertilizers and pesticide labels for compatibility, mixing, and usage.

Pest Management. The pesticides and rates mentioned in this study are those listed in New Mexico State University (NMSU) Pecan Management⁸. For more information on other pesticides available, pest identification, monitoring, and management, visit the NMSU pecan management website at pecans.nmsu.edu/management.html. Contact the local county extension office or the NMDA Pesticide Compliance Division for information on pesticide use permits. Pesticide costs may vary by location and grower’s volume.

Insects. Two major insect pests of pecans are aphids and pecan nut casebearer⁹. Yellow and black aphids can be controlled using the systemic insecticides Closer 2SC and Beleaf 50SG, which are applied in July, August, and September. Pecan nut casebearer is a nut-feeding insect that can be controlled with insecticides like Intrepid Edge and Confirm, applied in June and July. All insecticides are applied using an air blast sprayer with a 1,000-gallon tank powered by a 100 HP tractor.

Weeds. Weeds are controlled with chemical and mechanical (mowing) practices⁶. Annual weeds are controlled in the tree row (about 20% of the total acres) during February by a strip spray of a residual pre-emergence herbicide—Treflan or Karmex DF. Other chemical weed controls are carried out in the tree row during the production season—March, April, May, and July—and involve spot sprays using glyphosate (Roundup), a systemic herbicide. In addition, mechanical mowings are done five times from April to August with a mower-flail powered by the 90 HP tractor.

Harvest. Mature pecan orchards are harvested twice. The first pick usually yields about 80% of the nuts, while the second pick, which occurs two to three weeks later in November and December, harvests the remaining pecans. Pecans are shaken, swept, and picked up the same day. Mechanical harvesting begins by shaking the tree trunk to drop the nuts. The sweeper sweeps the pecans into the orchard row middles, where they are picked up by a mechanical harvester and dumped into field trailers. The pecans are then hauled from the field to a cleaner and huller to remove hulls and foreign material. Harvested pecans are then sold to wholesalers. In this study, it is assumed that the harvesting and cleaning work is done by a custom harvesting and cleaning company. All costs for custom harvest operations are charged on a per-pound basis ($0.55/lb.) (in the Tables, harvesting costs are expressed per acre).

Yields and Returns. Annual yields for the more common varieties are typically around 2,000 pounds per acre of clean, dry, in-shell pecans. Based on the 2024 market, an estimated price of $1.76 per pound of pecans is used in this study to determine potential profits/losses.

Pickup/ATV. The study assumes the pickup/ATV is for general farm use, such as moving laborers, picking up supplies and parts, monitoring the orchard, and checking the irrigation system. ATVs are also used for spot and insecticide spraying and are included in those specific costs. The authors estimated travel times.

Labor. This study assumes labor rates of $20 per hour for machine operators and $16.60 for general labor to which a payroll overhead of 38% is added. Thus, for example, $20 + ($20* 0.38) = $27.60 is the total hourly rate for machine operators. Labor for operations involving machinery is 10% higher than the machine operation time given in Table 1 to account for the extra labor involved in equipment set-up, moving, maintenance, work breaks, and field repair. For example, 1.5 hours of machine operations increased by 0.15 hours, resulting in 1.65 hours of machine operator’s time.

Wages for management are not included as cash costs. Any returns above total costs are considered as returns to management and risk. However, growers wanting to account for management may wish to add a fee. The manager makes all production decisions, including cultural practices, pest management recommendations, and labor.

Equipment Operating Costs. The operating costs of equipment use consist of repairs, fuel, and lubrication. Repair costs are based on purchase price, annual hours of use, total hours of life, and repair coefficients provided by the American Society of Agricultural Engineers (ASAE)¹. Fuel and lubrication costs are also determined by ASAE equations based on maximum PTO horsepower and fuel type. Prices for on-farm diesel and gasoline are assumed as $4.33 and $2.60 per gallon, respectively. The fuel, lube, and repair cost per acre for each operation in Table 1 is determined by multiplying the total hourly operating cost in Table 6 for each piece of equipment used for the selected operation times the hours per acre. Tractor and ATV time is 10% higher than implement time for a given operation to account for setup, travel, and downtime.

Interest In Operating Capital. Interest in operating capital is based on cash operating costs and is calculated monthly until harvest at a nominal interest rate of 9.75% per year. A nominal interest rate is the typical market cost of borrowed funds.

Risk. Production risks should not be minimized. While this study makes every effort to model a production system based on typical, real-world practices, it cannot fully represent financial, agronomic, and market risks affecting pecan production’s profitability and economic viability.

Cash Overhead Costs

Cash overhead consists of various expenses paid out during the year assigned to the whole farm and not to a particular operation. These costs include property taxes, interest on operating capital, office expenses, liability & property insurance, equipment repairs, and management.

Property Taxes. In Doña Ana County (where Mesilla Valley is located), the average per-acre value of tillable farmland in 2023 was $18,615. Taxable value of property is calculated using the following formula:

Taxable Value = (Per Acre Value of Tillable Farmland / 3) X Non-Residential County Tax Rate

In this context, the county tax rate is set at 2.9% of the property’s value².

Insurance. Insurance for farm investments varies depending on the assets included and the amount of coverage. Liability insurance covers accidents on the farm and is estimated at $8.33 per acre, resulting in $2,500 for the 300-acre farm. In this study, costs paid for crop loss insurance and participating government programs are not included.

Office Expense. Office and business expenses are estimated at $52 per producing acre (300 acres). These expenses include office supplies, telephones, bookkeeping, accounting, legal fees, shop and office utilities, and miscellaneous administrative charges. The cost is assumed based on indirect data with different sources such as internet sources, NM fact sheets, and local stores but not based on any actual data

Management/Supervisor Salaries. The owner farms the orchard; therefore, no salaries are included for management. Any returns above costs are considered a return to management.

Investment Repairs. Annual maintenance is calculated as two percent of the purchase price.

Non-Cash Overhead

Non-cash overhead is calculated as the capital recovery cost for equipment and other farm investments.

Capital Recovery Costs. Capital recovery cost is the annual depreciation and interest costs for a capital investment. It is the amount required each year to recover the difference between the purchase price and salvage value (unrecovered capital). It is equivalent to the annual payment on a loan for the investment, with the down payment equal to the discounted salvage value⁴. The formula for the calculation of the annual capital recovery costs is:

Capital recovery costs = (Purchase Price - Salvage Value) X (Capital Recovery Factor) + (Salvage Value x Interest Rate)

Salvage Value. Salvage value is an estimate of the remaining value of an investment at the end of its useful life. For farm machinery (tractors and implements), the remaining value is a percentage of the new cost of the investment⁴. The percent remaining value is calculated from equations developed by the American Society of Agricultural Engineers (ASAE) based on equipment type and years of life¹. The life in years is estimated by dividing the wear-out life, as given by ASAE, by the annual hours of use in this operation. For other investments, including pump systems, buildings, and miscellaneous equipment, the value at the end of its useful life is assumed to be zero. The purchase price and salvage value for equipment and investments are shown in the tables.

Capital Recovery Factor. Capital recovery factor is the annual payment whose present value at compound interest is one and depends on interest rate used and the lifespan of the machine¹.

Interest Rate. The real interest rate of 3% used to calculate capital recovery cost was obtained from American AgCredit, formally known as Farm Credit, in Doña Ana County in 2023.

Building. The buildings are assumed to have a total size of 2,400 square feet with metal construction on a cement slab.

Tools. This includes shop, hand, and miscellaneous field tools, such as pruning tools.

Fuel Tanks. Two gravity-fed 250-gallon fuel tanks are on metal stands in a cement containment pad meeting federal, state, and county regulations.

Equipment. Farm equipment can be purchased new or used, but the study uses the current purchase price for new equipment. The new purchase price is adjusted to 60% to reflect a mix of new and used equipment. Annual ownership costs for equipment and other investments are shown in the Whole Farm Annual Equipment, Investment, and Business Overhead Costs (Table 5). Equipment costs are composed of three parts: non-cash overhead, cash overhead, and operating costs. Both overhead factors have been discussed in previous sections, except taxes. In New Mexico, equipment taxes are calculated as:

Equipment Tax = (new value of equipment / 2) X 1/3 X non-residential county tax rate

The equation has been used in New Mexico State University’s Cost and Return Estimates (CARE) for farms and ranches, 2013-2023. That reflects in the unique situation of New Mexico equipment tax.

The tax rates of other investment facilities are assumed to be 1% of their value.

Table Values. Due to rounding, the totals may differ slightly from the sum of the components.

Sensitivity Analyses

We also performed sensitivity analyses on net returns using various yields and prices (Table 4). The baseline values for costs, yields, and prices are based on Tables 1 and 2; thus, the baseline yield and price are 2,000 lbs. per acre and $1.76 per pound, respectively (Table 2). To calculate net returns under different scenarios, we considered yields and prices above and below these baseline values, varying them in increments/decrements of 200 lbs. and $0.10. Changes in yield were assumed to impact only harvesting costs.

The Excel sheet for this sensitivity analysis is available upon request.

Tables

 *Total costs exclude land, management, and risk.

Content within this table has been based on data from William, 20143.

Content within the table is based on the management schedule from Herrera, 2005.

REFERENCES

1. American Society of Agricultural Engineers. (1992). American Society of Agricultural Engineers Standards Yearbook. St. Joseph, MI.
2. Doña Ana County Assessor. (2024). Las Cruces, New Mexico.
3. William, E. (2014). Estimating Farm Machinery Costs (A3-29). Extension and Outreach, Iowa State University. https://www.extension.iastate.edu/agdm/crops/html/a3-29.html
4. Kay, R.D., Edwards, W.M., & Duffy, P.A. (2019). Farm Management (9th ed.). McGraw-Hill Education.
5. Herrera, E. (2000). Pecan Orchard Management Schedule (Circular 544) . Cooperative Extension Service, New Mexico State University. https://pubs.nmsu.edu/_circulars/CR544/index.html
6. Beck, L. (2019). Integrated Weed Management in Pecan Orchard (Guide H-656). Cooperative Extension Service, New Mexico State University. https://pubs.nmsu.edu/_h/H656/index.html
7. Sibbett, G. S., Klonsky, K., Livingston, P., & De Moura, R. (2005). Sample Cost to Establish a Pecan Orchard and Produce Pecans. University of California Cooperative Extension.
8. New Mexico State University Cooperative Extension Service. (n.d.) New Mexico Pecans Pest Management. https://pecans.nmsu.edu/pecans/pest.html
9. Mulder, P.G. (2017). The Pecan Nut Casebearer (EPP-7189). Oklahoma Cooperative Extension Service. https://extension.okstate.edu/fact-sheets/the-pecan-nut-casebearer.html

Pilja Vitale is an extension economist in the Cooperative Extension Service at New Mexico State University. She received her B.S. in Agricultural Economics from Seoul National University, an M.S. in Agricultural Economics from Texas A&M University, and a Ph.D. in Agricultural Economics from Oklahoma State University. Vitale worked with vegetable farmers in Oklahoma for about 20 years and her interest areas are crop and livestock budgets and production economics. 

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November 2024. Las Cruces, NM.