This paper presents a six state variable Stochastic Dynamic Programming (SDP) model that quantifies cotton storage, monthly cash cotton sales, and hedging decisions for an Arizona cotton producer. The model incorporates income tax considerations, the lumpiness of futures contracts and the stochastic nature of cash price and basis (futures minus cash price) levels. State variables in the monthly model are: (1) beginning before-tax income level; (2) amount of cotton in storage; (3) quantity of futures position; (4) value of futures position; (5) cotton price; and (6) basis level. Decision variables are monthly cash cotton sales and futures market transactions. Results indicate that income tax considerations are important in determining optimal cash cotton sales and futures transactions.