Portfolio theory approach to plan areas for growing cotton, soybean, and corn in Mato Grosso, Brazil

Abstract: This study aims to describe how cotton farms in the state of Mato Grosso in Brazil are configured by building a model that optimizes income and risk for a combination of crops (cotton [first and second crop], soybean, and corn second crop). Two regions were defined: North and East Central Aggregate. The first region comprises the production of soybean in the summer and cotton and corn in the second harvest, while the second is restricted to the cultivation of cotton and soybean in the summer and corn in the second harvest. An optimization model was used to build a production efficiente frontier of crop combinations by analyzing the return-risk ratio. The model shows that the use of soybean crops in the summer season provides greater gains in profitability. Revenue is maximized in the area by an increase in the cotton crop during the first harvest; however, this exposes the farm to greater production risks. The use of second crops helps mitigate this production risk for farms.