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Why Pooling Works

I bumped into a long-time member of ours at lunch the other day, and we were talking about marketing this year’s crop. He hasVan May been in our pool the last several years and has become a big fan of pooling. He told me the thing he really likes about it is that it “takes all the pressure off.”

By that he meant that he no longer has to worry daily about marketing his crop and trying to outguess the pros in markets all over the world every day and night. He did not mean that he is never concerned about how the pool is doing in marketing his crop, but he has been at it long enough that he has developed the kind of confidence that makes him not worry about it much.

Obviously, pooling is not for everyone and this writing is not an attempt to “sell” the pool concept to anyone but merely to analyze it some. We have spent lots of effort developing the most effective acreage crop contracting program in PCCA history and in keeping our TELCOT system reliable and up-to-date to make sure we can effectively serve all our growers’ marketing preferences, but this article will focus on pooling.

That pool member’s comment spurred me to consider why and how our pools have been successful. So successful, in fact, that we have beaten the average non- pool price in the West Texas/Oklahoma pool 19 out of 21 years, and in the South Texas pool, 7 out of 8 years for a combined record of 26 wins and 3 losses. I am confident that when the 1996 crop is done we will be at 28 and 3, which is a pretty good record by anyone’s measure. Fine, but how was it achieved? Hopefully, the four following reasons provide a good portion of the explanation.

First, it seems our pool marketing policy is structured properly. By definition, the pool shoots for a strongaverage price over the course of an entire marketing season. By defining on the front end that we are not going to try to hit the highs of the market, a major mistake so many make is eliminated. Perhaps the Babe Ruth analogy is instructive here: The more you swing for the home run, the more you strike out. The pool does not swing for the home run and conversely never strikes out by hitting the low of the market either. Aiming for the best average price achievable over time gets us started on the right foot in marketing each pool.

Secondly, due to our extensive relationships with mill customers around the world we are able to capture margins in the “secondary market” between merchants and mills as well as the “primary market” between the growers and merchants. Accessing this additional layer of margins adds to the pool’s ability to out-perform other marketing methods.

Thirdly, we have a highly competent and professional marketing staff who are experienced and know the business. They are involved in markets around the world every day and night. While it might be possible for a diligent grower to assimilate as good and as much market information as we have by being actively involved in it every day, how many have the time? In particular, how about during busy production times such as planting and harvesting seasons during which marketing opportunities often occur? Your staff here is devoted to the market every day, all year long.

Finally, the financial strength of our balance sheet allows us the advantage of pricing pool cotton when it appears to be the right time in the market. That is the right reason to make a marketing decision contrasted with being pushed into decisions because of some financial stress or need for cash flow which can become acute in an individual farming operation, as we all know.

In summary, much of the pools’ successes are attributable to these four factors:

  • Strong average price strategy
  • Good mill relationships
  • Full-time, professional staff, and
  • Financial Strength of PCCA.

You don’t beat the average 90 percent of the time by just guessing right, being lucky or outsmarting everybody. It is done through the disciplined implementation of good strategy. Under the guidance of our pool committees, made up of pool members, that has consistently happened. Pooling has worked at PCCA, and while it is certainly not for everyone, it is rewarding to be able to “take the pressure off” for those growers who like the concept.

Van May