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Tailored Cotton Marketing Strategies that Align with Grower Risk Preferences

by Blair White

A Quick Guide to PCCA’s Marketing Options

Selecting the cotton marketing choice that best fits your operation each year can be nerve-racking. What worked for your operation last harvest may not work this harvest, or perhaps you can take on a bit more risk in your business now than you once could. That is one of the reasons PCCA offers a full suite of marketing choices and allows you to adapt. We understand that sometimes the only thing consistent in farming is change.

When it comes to risk, there are two critical questions to ask yourself at the turn of every new season:

How much risk am I comfortable with taking?

This is your risk appetite. The answer to this question is entirely dependent on your personal preferences. You can think of it like ordering from a restaurant menu. You have your tried-and-true favorite food, but you may want to try something new you have been eyeing. At the end of your dinner, you will know whether the new choice was better, or decide to go back with a proven winner.

How much risk can my operation withstand?

This is your risk tolerance. The answer to this question can be found in the numbers on your balance sheet or at the advice of your banker, accountant, or financial advisor. For example, you may think: Taking risks in the market keeps me up at night, which feels like my tolerance is probably low. However, my accountant says that my balance sheet is healthy, and I might be able to improve margins if I am willing to be patient. If the strategy does not work, I can still live to farm another day, so my risk tolerance might be high.

As your trusted cotton marketing cooperative, PCCA has choices that fit a variety of scenarios. For the following application, we will look through the lens of risk appetite. As you read about each marketing option, consider the level of risk you are personally comfortable with taking in your operation. Also, remember that the risk level within each marketing option could vary slightly depending on how you choose to utilize it.

Low to Moderate Risk Appetite

PCCA’s Seasonal Marketing Pool
Control Level: Low

This option is for the grower who wants low control when marketing cotton. When you put your cotton in the Seasonal Marketing Pool, our team of experts will market your crop year-round. You can focus on farming while we sell your cotton. Our seasonal pool adds value by capturing optimal pricing opportunities through the crop marketing cycle. The seasonal pool marketing agreement is a contract for acreage, not for a specific number of bales. The grower-owner can contract every bale or every other bale of the contracted farm’s production. The agreement remains in effect from year to year unless the grower-owner terminates it during the Sign In /Sign Out Period each year.

  • Acreage-based, so there’s no weather risk.
  • Focus on farming while our professional traders watch the markets.
  • Full season pricing model minimizes downside price risks.
  • Leverage PCCA’s global customer relationships.
  • Receive full CCC loan premiums.
  • Timely progress payments distributed as the pool is marketed.

PCCA Direct®
Control Level: Moderate

PCCA Direct and The Seam® are for growers who want moderate control when marketing their crops. If you want the opportunity to accept or reject bids (PCCA Direct) or have access to a global network of buyers to try to get a higher price for your cotton (The Seam), these options may be for you.

  • PCCA Direct provides the convenience of receiving competitive prices at your fingertips. Our team can contact you through the myPCCA app or your gin with an offer to purchase your cotton.
  • Sign up to receive and accept bids anywhere on the go with your mobile device.
  • Our Sales and Member Services teams can assist with any bids you request or receive.
  • Consult with a member of our marketing team to develop the best approach to cash marketing.
  • Growers can accept, reject, or counteroffer with the PCCA team through the myPCCA app.
  • LDP payments are automatically processed.*

The Seam®

Marketing your cash cotton online allows you to maximize your price. The Seam provides access to virtually all cotton buyers, eliminating the need for burdensome manual negotiations.

  • Online access to the largest network of global buyers and textile mills.
  • Having your cotton offered continuously gives you opportunities to capture sudden rises in the market and capitalize on favorable price movements.
  • PCCA’s Loan Advance Program provides upfront cash flow and allows you to trade the equity portion online in a separate transaction.
  • LDP payments are automatically processed.*

Moderate/High Risk Appetite

Control Level: Moderate

Both PCCA Direct On-Call and the Grower Choice Pool Option within the Seasonal Pool allow you to market a portion of your bales. While there is more risk with these options, you also get the security of other benefits such as receiving full CCC loan premiums up front, stopping accrual charges (warehouse, etc.), and having the opportunity to capture higher price points in the market. These options also give you more control over how your cotton is marketed.

PCCA Direct On-Call

PCCA Direct On-Call provides growers the ability to stay long in the market without being long physical bales. Growers that believe cotton futures will increase are most likely to benefit from this tool.

  • Only physical bales are eligible (must be ginned and classed).
  • Offers growers the opportunity to set or lock in the basis level on a recap today without locking in the price.
  • Charges stop accruing (warehousing, etc.)
  • Growers receive full loan value less customary charges at the time of initial invoicing, which helps meet cash flow needs.
  • Growers can place a GTC order to set the price if the market moves to the desired level.
  • Roll feature gives growers additional time to fix the price of their cotton.
  • Choose a new futures month to establish a new basis level to roll at any time before pricing deadline or roll date.
  • Rolling will incur a basis adjustment of 10 points plus the difference between months, but in no instance can the basis be improved or rolled beyond July futures.

Grower Choice Pool Option within the Seasonal Marketing Pool

  • The Grower Choice Pool Option lets you determine the price on a portion of your crop. Combined with the security of the Seasonal Pool, it allows you to identify the best market opportunities based on your preferences.
  • Choose to price up to 50% of your APH, and the balance of your bales go into the Seasonal Pool. It is well-suited for growers with a consistent APH.
  • Grower Choice Pool bales are marketed separately and do not impact the returns of the regular Seasonal Pool.
  • Basis is set during the Sign In/Sign Out Period when the number of bales to price is chosen.
  • Acreage-based contract until bales are priced. If bales are not priced or rolled, and a crop failure occurs, provided PCCA is notified before the options expiration date of the future month, then there is no obligation to fulfill the contract.
  • All bales must be priced or rolled before the options expiration date for the futures month, or PCCA will price any remaining unpriced bales.
  • Rolling these will incur a basis adjustment of 10 points plus the difference between months, but in no instance can the basis be improved or rolled beyond July futures.

High Risk Appetite

Forward Contracts
Control Level: High

You must deliver your cotton at harvest when you contract your cotton into a forward bale contract. If a crop failure or other external factor inhibits your production, you are still obligated to deliver your bales. Forward Contracts can be a case of high risk and high reward. Once you sign a forward contract for your bales, your price is locked in despite market fluctuations.

  • Forward Contracts can provide excellent opportunities to lock in pricing on bales. Because these contracts require the delivery of committed bales, this tool is best suited for growers with a proven production history.
  • Growers can place good-til-cancelled (GTC) orders to help them achieve their price target.
  • LDP payments are automatically processed.*

This guide serves as a starting point to better understand what PCCA marketing choice best fits your operation’s needs and risk preferences. If you would like to discuss the details of these options further or work with a marketing expert to find the best fit, please call the PCCA Sales Team for assistance at 806-763-8011.

Deferred payment arrangements can be utilized for all marketing options.
*Loan Deficiency Payment, when applicable, for eligible cotton