Tom Walker, a former New York Board of Trade/New York Cotton Exchange executive, in a 2003 conversation with Cotton Incorporated Ag Economist, Jeanne Reeves, said he thought cotton producers needed to be more aware of, and more involved in, their marketing decisions.
That conversation was soon expanded to include cotton procurement executives at North Carolina mills like Dan River and others where ideas were generated to design a program that would educate producers about the many options, methods, scenarios and theories involved with cotton marketing.
“The real genesis of the Cotton Price Risk Management Seminars began within the mill segment, but soon moved into the producer segment,” said Reeves.
The next one is scheduled for Lubbock, Texas, April 8. (See details below.)
Reeves has been spearheading the seminars’ organizational and implementation efforts, which were originally funded since 2004 by both Cotton Incorporated and the New York Board of Trade (now ICE), but exclusively by Cotton Incorporated since 2007. During the first few years, economic consultants were hired to teach seminar attendees the various marketing techniques, while cotton marketing specialists like Carl Anderson and O.A. Cleveland were used to stimulate conversation during question and answer sessions.
After post-seminar surveys from attending growers in 2007-08 reflected a perceived disconnect between them and the hired consultants, Reeves changed the lineup and began using the cotton marketing analysts to teach the seminars.
“While the presenters have changed, we do try to always bring in special guest speakers, whether they are from the merchant or the co-op side,” said Reeves.
She is quick to admit that it does not matter if you market your cotton in a cooperative seasonal pool or work with a dedicated merchant, it would benefit every grower — and probably increase the economic bottom line, if he knew more about cotton marketing in general.
“That kind of knowledge gives the producer the confidence to supplement their decisions with options, especially when cotton markets experience volatility,” said Reeves.
Strategic locales for seminars
The Cotton Price Risk Management Seminars are scheduled in strategic locations and are regionally accessible to most growers. The seminar held recently in Memphis drew producers from as far away as Atmore, Ala. But conference attendance figures seem to fluctuate depending on the regions where they are held.
“There are certain parts of the Cotton Belt that have larger farming operations, and that usually causes a reduction in the number of attendees. While those farming regions have larger acreage, there are, consequently, fewer growers. But the producer attendee numbers we get are actually representative of that specific area or region,” said Reeves.
With the passing of Mike Stevens in 2012 and Carl Anderson in 2014, Reeves had to fill a huge void in the seminars. Both Stevens and Anderson were fixtures at the annual events. Stevens was in his 70s and Anderson in his 80s, and combined, contributed over 100 years of cotton and cotton marketing experience. They were unique because they could tender advice on countless scenarios of cotton market fluctuation they had monitored and tracked through the years.
“I don’t how many times I heard one of them say, ‘I can’t tell you what’s going to happen when the market does this now, but when this same or similar scenario occurred years ago, this is exactly what happened,’ and you can’t replace that kind of insight overnight,” she said.
Reeves believes the seminar will basically remain the same information-wise moving forward, but is adamant about staying current with the latest trends and policies that impact cotton marketing so she and others involved with the seminars can pass that information on to all attending producers. She is also starting to see more bankers, merchants, cooperative representatives and crop insurance agents showing interest in the seminars.
“This is a brand new marketing world for everyone, and they all want to be plugged into the market to learn and share information. So the scope of the seminar is changing. What will not change though is our priority of always putting the producer segment first in the way the information is designed and presented, because it’s their assessment dollars that help fund our program,” she said.
New instructors and guests
John Robinson, professor and Extension economist-cotton marketing for the AgriLife Extension Service at Texas A&M, has taken on a much larger role in the seminars since the passing of Stevens and Anderson. This year, he opened the event with several comments that included how the National Cotton Council’s recently released planting intention numbers surprised not only him, but quite a few people.
“I thought Texas would have a 5 percent drop, so the almost 14 percent figure really caught me by surprise. I guess grain sorghum is looking pretty attractive for a quite a few Texas farmers,” said Robinson.
Robinson took those numbers, did some recalculating and found if accurate, more than a half a million bales could be cut off the ending stocks number for this year, which could make things even tighter. It leaves the U.S. in a “crop-building mode” for this year compared to 2014, but it still leaves him less bearish than he was before those numbers were released.
“The world cotton market really needed this to happen so some of the cotton surplus that’s been building (mostly in other countries) can be depleted, but I know our ginners don’t like to hear that,” said Robinson.
It doesn’t change Robinson’s price outlook. With futures settled in the 60-cent range and cash prices in the 50-cent range, his 2015 forecast moving forward closely mirrors those numbers. He was a presenter at this seminar for the last two years and remembers giving advice about potential downswings in prices. He told producers an options strategy might be a good idea, and would give them a floor to protect themselves from a big fall if that occurred.
“I just don’t see that kind of price move happening anytime soon. I think we may be trading in a narrow band, and if you’re in the market, you might pick up a little piece here and there. But that will be more difficult and involves a more complicated timing of management positions,” he said.
Robinson advises producers to hone their marketing skills by attending the seminars, especially when there’s so much cotton stockpiled in places like China.
If producers think there is a risk for a further price decline, even if their cotton is in a cooperative, they could hedge what they think the pool manager is doing (if he is just selling into the current trend) and put a floor in to protect themselves and/or capitalize on an opportunistic rally.
“From a bad planting season, to unforeseen weather events anywhere in the world, opportunistic market rallies are caused by so many things, so developing a call options strategy to take advantage of those events is many times advisable,” said Robinson.
Lubbock Seminar details
Instructor: Dr. John Robinson, Texas A&M AgriLife Extension economist, will discuss when how to use a variety of option strategies involving puts, calls, and spreads.
- Why are options on cotton futures critical to your business?
- What can options do for you and how?
- Actionable hedging strategies based on various price scenarios
- Market Outlook
The seminar will be held Wednesday, April 8, from 8:30 a.m. to 5:00 p.m. at The Overton Hotel, 2322 Mac Davis Lane, Lubbock, Texas.
Space is limited and you must reserve your seat by registering with Lynda Keys at (919) 678-2269 or by emailing her at [email protected].