Selling cotton — for a profit at least — provides bigger challenges for growers than production, but producers still have opportunities to make money by taking advantage of government programs and using available marketing strategies to protect against price drops.
Marketing pools, electronic sales, and concentrating on high quality fiber may help cotton farmers get a bit more for their labor, according to a panel of marketing experts on hand at the recent Texas Gulf Coast Cotton Conference in Corpus Christi.
A number of pool opportunities are available, including some that market specific types of cotton.
James Wetter, of Dunavant Enterprises, said a FiberMax pool last year provided as much as 67 cents per pound, including government payments.
“We think that program will be a good option in 2002,” Wetter said, “and we'll offer two pools and will penalize FiberMax cotton that is stripped. A second pool will be open to other varieties.”
The pool charges an $8 per bales marketing fee. “The pool assumes a great deal of risk to assure a price much over loan,” he said.
FiberMax cotton “has been well received as premium cotton, and we're enthusiastic about it. Quality compares with Australia and South American lint.”
Alan Vinson, of ECOM: U.S. Cotton Growers Association, said the association market pool “guarantees a minimum price but maintains upside potential for growers. A pool allows farmers to concentrate on production and let professionals sell the crop. We collect information from around the world and use futures and options.”
Vinson said marketing pools are a good marketing tool but “are not for everyone.”
John Mitchell, Hohenberg Brothers Company, said high quality cotton will find a market. “The market will pay a premium for longer and stronger fiber,” he said. “We'll offer a contract but we have to be conservative with a premium guarantee.”
He also praised the FiberMax program. “The National Quality Cotton Association will be a new name for the program,” he said, “and will open the door to non-FiberMax varieties. The association will promote production of longer, stronger, premium cotton and get that premium back to the growers.”
Mitchell said comparing one pool to another is difficult, “But so far, the cotton in the FiberMax Association has brought up to a six cents per pound premium. Those premiums, however, fluctuate with price.”
Even with a down market, Mitchell said, demand for high quality cotton remains good. “We're finding new markets for premium cotton in India and South America, but we don't believe they'll compete with U.S. textile mills.”
Chief competition, he said, comes from man-made fibers. “But I think we'll take that market back, the way we did in the 1970s. Our best news is high quality cotton.”
David Stanford, Plains Cotton Co-op Association, said improving cotton profitability depends on a number of factors, including: investing in cotton industry infrastructure, hedging prior to harvest, using marketing pools and improving quality and yields.
“South Texas did a good job last year of switching to varieties with improved yield and quality characteristics.”
Pools, he said, allows marketers to take advantage of special mill needs and possibly get premiums for quality.
“Investing in the industry infrastructure allows growers to benefit from each aspect of the cotton business,” he said. The more value a producer can add to the product before he turns it over to someone else, the better his profit potential.
Kevin Brinkley, marketing director for The Seam, said electronic marketing allows producers to “reduce the cost of selling cotton and could help make U.S. cotton more competitive.”
The Seam handles collections for producers, who can market to a number of buyers through several providers.
“Growers receive bids and make counter offers,” he said. “Electronic marketing is a price discovery tool. And all the paperwork is electronic.”
Robert Weil, Weil Brothers, said following the 1996 FAIR Act, cotton marketing became more complex. “We believe many farmers need more help to sell their crops,” he said.
Studying their options is critical, he added. “Growers have options when they put seed in the ground and they need to look at all those possibilities, pools, call options, contracts and holding the crop.
“A market association allows growers to take advantage of anomalies in the market throughout the year.”