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A Winning Combination: Regional Co-ops Add Value Through Vertical Integration

by Blair White

They say teamwork makes the dream work. Usually this adage refers to sports, but here there is no stadium, court, or track. There are only wide-open fields of possibility and profitability ready for the taking, but they come with a catch. How do you find the winning combination of businesses to increase your profitability? By becoming vertically integrated throughout the entire co-op supply chain.

Consistent use of vertical integration is the secret sauce when it comes to success in the co-op world. Take, for example, a farmer who is a member of the local co-op gin, warehouse, marketing association and cottonseed oil mill. That adds up to four different businesses that can return their profits to the farmer in dividends and stock retirements. The farmer who stays vertically integrated for years will reap the benefits in their operation, but a producer who is not vertically integrated throughout the supply chain has only one or two opportunities for added value. The question is simple: why not choose vertical integration?

Your regional cooperatives are always hard at work to improve their processes for the end goal of higher producer profitability. Installing new state-of-the-art equipment, fine-tuning business strategies and focusing on grower relations only hint at the sweat-equity being put in at these companies. They also take the time to assist one another for the benefit of their shared grower-owners.

Keep reading to learn more about the advancements PYCO, Farmers Cooperative Compress, Gulf Compress, Taylor Compress, VALCO and PCOM have been making to add value to your crop.

PYCO regional cooperativesHeadquartered in Lubbock, Texas: PYCO Industries, Inc.

PYCO works to ensure its member gins and farmers get the highest possible value for their cottonseed. Last year, the co-op installed a state-of-the-art cleaning and delinting room, replacing 35-year-old equipment and increasing power and labor efficiencies. PYCO has also changed the way it purchases cottonseed from gins. In the past, the organization had offered yearly prices for cottonseed. Now, they offer prices daily, allowing gins to set prices earlier and the oil mill to sell and hedge products. In April of last year, PYCO also purchased Cape and Son in Abilene, Texas, along with its storage locations in Sweetwater and Waco. Obtaining the business allows PYCO to have statewide handling of seed across Texas and into Louisiana, and even ship rail cars to the West Coast. PYCO received enough cottonseed to maintain its maximum processing capacity for the entire 2021-2022 crop year. The co-op can process 420,000 tons of cottonseed each year which is the equivalent of 126 million pounds of cottonseed oil.

“At PYCO Industries, we go to work every day for the benefit of our member gins and ultimately the producers in our area,” said Robert Lacy, PYCO Industries’ CEO. “Our employees take pride in everything they do as if they too have ownership in PYCO. They are the most creative and knowledgeable people in the cottonseed industry and continue to make the best decisions for the betterment of this business. PYCO was founded in 1936 by gins who wanted to have more control of their destiny, and 86 years later, the reason for the existence of PYCO is still the same. We look forward to the next 86 years of service to our members/owners.”

FCC regional cooperativesHeadquartered in Lubbock, Texas: Farmers Cooperative Compress

Farmers Cooperative Compress is one of the largest co-op cotton warehouses in the world with six locations and a more than 2.7 million bale storage capacity. This crop year the warehouse handled the sixth-largest crop in its history as they received 2.57 million bales from grower-owners across Texas. The current strong demand for cotton has also resulted in a heavy volume of shipping orders. FCC continues to get shipping orders ready for export; however, the warehouse had a record 3,150 loads ready to be exported that couldn’t be shipped because of supply chain challenges. Even still, efforts to add value in terms of shipping and inventory efficiency are made each day at FCC. The cooperative’s goal is to continue to add value to bales stored at FCC by providing excellent service to their members, gins and shippers. The compress also regularly communicates and collaborates with PCCA and PYCO regarding a variety of efforts to assist the members they have in common.

“FCC highly values the trust our members have given us to warehouse, protect and ship their hard-earned crop,” said Eric Wanjura, FCC CEO. “We want to be a partner in enhancing their profitability by providing excellent service through their membership and vertical integration. Our member-growers can participate in the upstream benefits of the supply chain by both enhancing the value of their bales based on storage location and by receiving patronage dividends from ownership in their warehouse cooperative.”

Gulf Compress regional cooperativesHeadquartered in Corpus Christi, Texas: Gulf Compress

Gulf Compress contributes additional value to South Texas farmers’ cotton through its innovative operations year-round. The co-op has 65 acres of storage capacity spread across five locations in the Corpus Christi area. Gulf Compress’ business goals for the year focus on reducing supply chain complexities with the end goal of more directly connecting the farmer to textile mills. The business is also keen on solving logistical problems for producers, gins and merchants through the development of various business platforms. These will allow them to capture the potential premium value that early marketing versus October Cotton Futures could provide. Gulf Compress has been utilizing its own unique co-op storage model that permits the repurposing of used shipping containers since 2019. This model is certified by USDA and saves the compress, and by extension its members, more money. Gulf has also optimized its operations with PCCA’s Warehouse Management Systems technology since 2009. The quick and timely injection of South Texas cotton into the global supply chain is the future of Gulf Compress’ market.

“Vertical integration is evolving in our industry, and reducing the complexities that will be experienced in alliances, marketing agreements, joint ventures, combined focuses, and even strategic mergers,” explained Robert Swize, Gulf Compress CEO. “The regionalization of the cooperative model continues to develop in Texas and other states to provide relevance within a cooperative service area. Relevance matters in any market, including the cooperative model. This relevance will be imperative for producers to remain competitive in their agricultural products processing, storage, logistics, and marketing services requirements. Competitors will vertically integrate, but for their benefit. Producer-owned cooperatives will continue to vertically integrate to create savings and, more importantly, generate relevance for the producer.”

Headquartered in Taylor, Texas: Taylor Compress

Providing the best possible service leads to the greatest monetary return to farmers. This belief drives Taylor Compress’ goal each crop year for its growers. The compress has the capacity to receive, store and ship 200,000 bales of cotton each season through its locations in Taylor and Bryan, Texas. The compress also utilizes block-stacking configurations and barcode scanners in its operations in order to stay on the leading edge of technology and efficiency. These tools provide more effective tracking of bales, reduce paper records, and increase ease of warehouse adjustments for fewer bale touches. Taylor Compress’s goal to return the entirety of its profits to producers in the form of patronage dividends sets it apart from other businesses. The co-op also works each day to provide reliable service to shippers who utilize their facilities. Doing so allows for ease of use when regional co-ops such as PCCA sell shared members’ bales.

“Ultimately a producer pays for everything in some manner,” said Jordan Grier, CEO of Taylor Compress. “The value the producer who utilizes Taylor Compress facilities receives is the savings from the warehouse charges that are deducted from their check when they sell their cotton. The services that we provide to cotton shippers in the form of removing individual bales from storage and assembling bales into loads that can be utilized by textile mills across the world generate revenue on behalf of the grower-owner. Any profit that is made from operations is able to be returned in the form of patronage dividends to our grower-owners. Each year we strive to see that these profits are able to at least save the member what was deducted from their check but also hope that it is able to make a return on their business.”

Headquartered in Harlingen, Texas: Valley Cooperative Oil Mill

VALCO has been working hard for its grower-owners since 1946. The co-op is a once-refined cottonseed oil mill with over 200,000 tons of covered cottonseed storage. VALCO’s service area runs along the gulf coast from the Rio Grande Valley to Houston, and it has 18 member gins. Recently, the co-op has constructed a satellite seed storage location in El Campo. This innovation added 60,000 tons of capacity as well as the necessary infrastructure to support it. VALCO’s goal with this new location was to establish more of a presence in the upper coast area in an effort to build more membership and acquire a higher volume of cottonseed. In looking toward the future, the regional’s goal is much the same: increase membership and volume, and develop better markets for the products they produce to bring in larger profits for members. VALCO also encourages its members to be vertically integrated in the supply chain as well.

“We encourage all of our producers to stay involved in their local gin to start, and then also participate with the regionals in the services and markets they bring to the table,” said Jim Massey, VALCO’s CEO. “This will keep that producer more involved with his products beyond just harvesting and selling the lint. Also, encourage your local facility to support the regionals. It brings the vertical integration and gets you the maximum value of the products you produce.”

PCOM regional cooperativesHeadquartered in Altus, Oklahoma: Producers Cooperative Oil Mill

Producers Cooperative Oil Mill in Altus, Oklahoma, was established in 1944 and serves gins in Southwest Oklahoma and Northern Texas. Since then, the co-op has worked tirelessly to add value to the supply chain and its members. This year PCOM was successful in selling dormant properties owned by the co-op to improve its balance sheet. It has also increased the speed and efficiency of loading railcars at its facilities. PCOM is the only co-op in the nation that can load two 100-car cottonseed unit trains at the same time. Each action the regional takes is aimed at improving its competitiveness in the marketplace. PCOM also encourages its members to be vertically integrated with their local and regional co-ops for opportunities such as decision-making and ensuring their voices are heard. This helps keep valuable agricultural infrastructure in Oklahoma and Texas.

“The cooperative model represents individuals – the producers that actually grow the cotton and supports the cotton gins that are our members,” Rose said. “What we do benefits them directly because the money we make and the cash flow that is generated by PCOM is returned to them. Cooperatives are owned by the people we serve. It gives me more incentive to do well because I know the people I’m working for.”