Introduction: Texas is the largest cotton growing state in U.S. On an average, it grows 6 million acres and produces 5.6 million bales of cotton annually, and represents 40 % of acreage and 30% of production in U.S. Texas cotton statistics for last five years revealed that the acreage, production and yield have growing trends. Especially, the productivity has grown almost by 70% and the production by 113%.

Determining the fertilizer-output relationship can provide a means to proper fertilizer management by selecting economically optimal rate of fertilization that has direct implications on crop profitability. Proper nutrient management also leads to minimization of the energy used in manufacturing them and reduces the impact on environmental degradation. However, the construction of agricultural production function is considered to be complex because of the existence of the interaction effect among the various inputs and uncontrollable natural exogenous factors. Development of such models is also important as forecasting the crop production can act as an instrument for agriculture planner to respond timely for impending shortages, and allow them to be prepared to face the harsh consequences and/or to develop early warning system.

Objectives: The objectives of this study are, (1) to estimate the maximum potential Texas cotton yield, (2) to find the economically optimal rate of nitrogen fertilization for cotton production in Texas, and (3) to evaluate sensitivity of nitrogen fertilization for the variation of prices of cotton and nitrogen fertilizer.

Data and Methods: The National Agricultural Statistics Service (NASS) website and the Economic Research Service (ERS) website are used to collect all the data for the study, which include yield, price, fertilizer applications, weather, and etc. for last 30 years in cotton production in Texas.

An empirical model will be estimated by running various iterations using SAS GLM procedure based on R2 and t-statistics values. The optimal level of nitrogen fertilization is obtained by maximizing the profit function based on current input-output price ratio. Sensitivity analysis will be performed for various price structures to obtain the optimal fertilization rate and the profit.