As a cotton grower, you have many decisions to make when it comes to your farming operation. From the seed you put in the ground to how you cultivate it, and ultimately how you plan to market it, these are all things a farmer must consider prior to planting the crop.
Providing a wide range of marketing products enables growers to custom design and plan for their farming operation. Technology-enabled seasonal marketing pools, contracting, and cash trading deliver a powerful array of choices to provide the best combination of prices and selling experience. PCCA’s Director of Sales, Grady Martin, discusses each in this Q&A session.
POOL MARKETING
How many marketing pools does PCCA have?
PCCA operates two separate marketing pools. The South Texas Marketing Pool serves growers in the South and Central Texas regions while the West Texas, Oklahoma, and Kansas Marketing Pool serves growers in the High Plains, Rolling Plains, and Edward’s Plateau regions of Texas, and the states of Oklahoma and Kansas.
How does a producer enroll their cotton in PCCA’s Marketing Pool?
In order to become a member of one of PCCA’s marketing pools, a grower must sign in to the marketing pool by completing a Pool Marketing Agreement during the designated sign in period. This agreement can be obtained through local cooperative gins or PCCA’s Cotton Services Department. Growers have the option to commit either all of the production from the contracted acreage or every other bale.
Once a grower has signed in to the marketing pool, the grower remains a member of that pool and is under obligation to deliver the cotton produced on the contracted acres for each subsequent crop year until signing out of the marketing pool during the designated Sign In/Sign Out period.
Who controls PCCA’s Marketing Pool?
PCCA’s sales staff, with guidance and oversight from the Marketing Pool Committees, is responsible for selling pool cotton. Staff monitor futures markets, export markets, relative values of competing growths, effects of farm programs and other news from around the world on a daily basis in an effort to optimize the total returns received by PCCA’s grower-owners. Each selling opportunity, as seen through the lens of current market views and expectations, is compared to guidance obtained from the Marketing Pool Committees.
How will I get paid if I market through a PCCA Pool?
Prior to harvest, PCCA’s Board of Directors will set an initial advance based upon a number of factors, including but not limited to: the expected size of the pool, number of bales sold, and expected proceeds from sales year-to-date. Pool members receive the advance payment at the time the cotton is delivered to the marketing pool. As the year progresses, additional cotton is sold and the proceeds from those sales are realized, the Board of Directors will declare progress payments. At year-end, remaining proceeds from sales will be allocated and paid out as dividends.
How do progress payments benefit growers?
Markets work best when the commodity is marketed in an orderly fashion. If the total U.S. production had to be sold at harvest, the resulting pressure to sell would drive prices down. Progress payments allow marketing pools to hold a portion of production off the market at harvest in order to limit harvest selling pressure and take advantage of better prices later in the season. Also, this may be a surprise to some, but marketing pools and progress payments in addition to benefitting pool members also benefit non-pool growers. Managing pool sales to minimize adverse price effects allows non-pool members marketing at harvest to benefit from better prices.
What are the benefits of marketing cotton in a pool?
In our growing region, one of the most important benefits is that the pool is a true acreage-based contract. If the pool member doesn’t choose to plant cotton, is prevented from planting cotton, the crop is hailed out, or yields were adversely affected by drought, the pool member is only obligated to deliver to the pool the bales that were produced.
While we all wish we were omniscient and able to sell every bale at the absolute peak price every year, we all know that peak marketing opportunities are only obvious when seen in the rearview mirror. Marketing pool members can maximize yields by focusing on the farming operation knowing that PCCA’s sales staff is working every day to take advantage of opportunities as they arise, delivering a price at or above the season average. PCCA’s marketing pool members also benefit from the professional sales staff’s years of experience and global reach of PCCA’s marketing network.
How does pool marketing provide growers with a sense of stability?
In my opinion, nothing is a better illustration of faith than farming. Modern crop insurance products have removed some of the gamble, but not all of it. Every year farmers across the country invest most, if not all, of their net worth on seed and other inputs with faith that when the season is over they will be able to harvest and market a crop that is worth more than what they had invested. Many things can go wrong. Two of those problems are price and liquidity. In our area, sometimes due to adverse weather conditions, the crop we harvest may have qualities that make it difficult to find a market. A member of PCCA’s marketing pool can operate with the knowledge that at the end of the year when he harvests that cotton, PCCA’s marketing pool will advance a fair price for the quality delivered, and work to find the right market in the world to optimize the returns we are able to put in his pocket through progress payments and the year-end dividend.
What makes PCCA’s pool a good option for growers?
In addition to the reasons above, PCCA is not privately owned or a corporation working for the benefit of stockholders. PCCA is a grower-owned cooperative working to maximize net dollars paid to our grower-owners. PCCA’s sales staff works every day to find the best available markets for PCCA members.
PCCA’s sales staff involves more than the small group of people in the Sales Department. The entire team plays a role in this process as many people in Accounting, Cotton Services and Information Systems work hard to generate statements, checks, progress payments, and the year-end dividend. It is a team effort and without their work and support we would not be able to do what we do.
CONTRACT OPTIONS
What contract options does PCCA offer growers prior to harvest?
PCCA offers a couple of different bale contracts prior to harvest. The pricing structure of these contracts is tailored to maximize grower returns depending upon the type of cotton produced. One of the contracts is designed to maximize the value of high grades, but in order to do that, cotton with shorter staple, lower micronaire, or extraneous matter will receive larger discounts. Other contracts are designed to maximize the value of cotton that may have shorter staple, lower micronaire or extraneous matter.
When should a grower consider contracting his cotton?
Three things should be present when making a deci- sion to enter into a bale contract:
- The producer must have confidence production will be sufficient to fulfill the commitment.
- The price expectations should be high enough to provide a large enough margin to exceed the expected cost of production.
- The terms of the contract need to be agreeable. Don’t be blinded by the headline and unpleasantly surprised at the end of the year when delivering the cotton.
What are the advantages of contracting cotton?
There are two basic advantages of contracting cotton. First, the ability to lock in a good margin and second, liquidity at harvest. There are times when the producer needs to turn his crop into cash, but there is not an available buyer. A contract cures both of these problems.
How does contracting differ from pool marketing?
The producer is in charge of researching options, deciding which is best for their farming operations and timing when to fix the price.
CASH OPTIONS
What cash options does PCCA offer grower-owners?
PCCA offers two cash options for our grower-owners to market their cotton after harvest. One option is marketing through The Seam®, which provides grower-owners online access to foreign and domestic buyers and textile mills. PCCA is not only one of the majority owners of The Seam, but also is an active participant buying and selling cotton. The other cash option available to PCCA grower-owners is PCCA Direct, where we have the ability to bid directly to our grower-owners or their cooperative gins.
When should a grower choose to market their cotton after harvest?
“Fortunes are made by selling too soon.” My father stressed that little bit of wisdom to me over and over again, and through the years the truth expressed by this simple statement has been proven time and time again. The end goal of every grower is to realize a good profit margin with which they can provide for the future of their family. If the opportunity presents itself to accomplish that goal prior to harvest, and accepting the opportunity does not subject them to unbearable risk, why turn the opportunity down. However, sometimes the risk may be greater than the prize. If accepting the opportunity means guaranteeing production from dryland acres in a drought, waiting until harvest may be the safer bet.
What are the advantages of marketing through The Seam?
The Seam is an invaluable tool for PCCA’s grower-owners. The real-time trading monitor is a great price-discovery tool. Once the grower has set a price target, The Seam’s trading platform provides access to a larger number of cotton buyers, ensuring the most competitive price possible. Finally, once the cotton is sold and invoiced, PCCA assures payment to the grower is timely and safe.
What are the advantages of marketing through PCCA Direct?
PCCA Direct provides for greater communication between PCCA’s staff and our grower-owners. When PCCA’s sales staff finds a marketing opportunity, PCCA Direct allows us to search through all of the lots on our system looking for cotton matching the necessary specifications. If the cotton is already offered on The Seam, we can send a counter-offer or purchase the cotton on The Seam. However, if the cotton is not in offer we can send the bid through PCCA Direct to the grower’s cooperative gin; and if the grower is signed up to participate, the bid will be routed directly to their smartphone through the Member Access app. The grower through the Member Access app can accept, reject, send a counter-offer, or message with PCCA’s staff.
PCCA Direct also provides PCCA’s Member Communication Area Managers the ability to access our direct price for any lot currently on the system. For example, if a grower sees their area manager at the local cafe and wants to know what their cotton is worth, all they have to do is ask. Our area managers not only have access to PCCA’s current price for each lot, but also have the ability to complete the purchase. PCCA’s goal is to provide our grower-owners with the marketing opportunity when the grower is ready.
The last benefit of PCCA Direct is what I like to call the cooperative advantage. When a lot is initially being sent to The Seam and the current PCCA Direct price exceeds the offer price, PCCA Direct automatically purchases the list of cotton and pays the grower the higher price.
No matter which marketing option works best for your farming operation, PCCA is here to help. Please reach out to PCCA’s Sales or Member Services teams if you have any questions.
