Last year, a group of farmers in eastern North Carolina took the next step to give farmers “prices in the upper two-thirds to three-fourths of the trading range of the market for any particular year.”
They formed the Coastal Quality Cotton Cooperative and are looking to expand marketing opportunities for those who grow cotton in the area and other areas. Cotton is marketed by seasonal pool.
The new marketing cooperative grew out of the effort of nine area farmers who built two cotton gins in the past decade in the Blacklands of eastern North Carolina. The Coastal Carolina Gin last year ginned some 45,000 acres of cotton. They are expecting to increase to 50,000 acres this year.
Out of the box, the new co-op has employed Hohenberg Brothers of Memphis, Tenn., as its marketing agent, says Milton Prince. During the winter and spring, the group held 10 informational meetings with farmers and signed up 63,000 in the co-op. The co-op presented information to growers as far away as the Eastern Shore of Virginia.
Under the arrangement, a grower agrees to market a portion or his entire crop with the co-op. He automatically becomes a voting member of the co-op. Growers confirm acreage with the co-op in June.
The crop will be marketed using futures, direct sales and option strategies, Prince says. “John Mitchell of Hohenberg Brothers is the marketing agent.”
By using a marketing agent, the co-op “takes the emotion out of cotton marketing for growers,” Prince says.
“Typically, the farmer gets emotional in his marketing,” Prince says. “If he misses a high in the market and it starts falling, he says he won't sell at that low of a price. Then the price goes lower and he panics and is afraid that it's going to fall out of bed. He sells and then watches the market go back up.
“A marketing agent watches the market daily,” Prince says. “However, there are no guarantees and this marketing method is not necessarily going to mean the very top price for farmers, but it's going to keep the farmer in the upper two-thirds to three-fourths of the marketing range for any given year.”
In the co-op scenario, the grower gets an immediate advance of the loan price, plus any premiums or minus discounts when the cotton is placed under government loan after ginning. Subsequent advances determinations are made in December, March, May and July.
“The real advantage to the co-op is the farmer can market 100 percent of his cotton,” Prince says. “Most farmers are conservative in their booking a crop and wind up producing more cotton than they have contracted. This is what kills them. They've done a great job with filling the contract, but they have cotton left over and they have to decide what to do with it.
“With the co-op, they have no un-fixed bales at the end of the season that they have to make marketing decisions on,” Prince says. “Most of the time when a farmer has bales he hasn't contracted, he winds up getting less for the cotton.”
Another advantage of a co-op, Prince says, is fewer discounts.
“Merchants will add additional discounts to government discounts as protection against quality problems with cotton,” Prince says. “In this co-op that's not going to happen. The merchants will impose no additional discounts.
“Through this cooperative, whatever premiums the cotton is entitled to, the grower will receive,” Prince says. The co-op pays its members a 200-point premium for cotton that meets the minimum standard of 41 color, four leaf, 3.8-4.9 micronaire, 35 staple, 28 strength, no grass or bark and ginned UD.
The new co-op is non-profit. “All the revenues generated are passed on to the grower,” Prince says. “At the end of the fiscal year, accounts will be zeroed-out. All money is paid out by the end of the year.”
Cotton planted as ultra-narrow-row or harvested by stripper equipment is not accepted by the co-op. Members agree to notify the co-op immediately of any crop loss. Title to the cotton passes from the member to the co-op after ginning. Any ginning or warehouse charges are deducted from the initial payment.
The members own the co-op. “Our only reason for forming the co-op is to make cotton production more profitable for the grower,” Prince says. “We know that if a grower can make a profit from cotton, he's going to continue growing it and that gives us a chance to gin it.”
For more information, the Coastal Quality Cotton Cooperative is located at 4851 Terra Ceia Road, Pantego, N.C. 27860. The phone number is 252-943-6990; fax number, 252-943-3043. Sign up dates are July 1-Feb. 28.