Milton Prince lists premiums, price and a philosophy that aims for the top third of the market, as the main reasons Quality Cotton Cooperative has grown.
Now in its fourth year, Quality Cotton Cooperative, based in Plymouth, N.C., has some 300 growers and is affiliated with some 20 gins. Cargill Cotton, Inc is currently employed by the co-op to market around 93,000 acres of cotton in North Carolina and Virginia.
The cooperative began in 2000 as an effort of Coastal Carolina Gin to improve cotton marketing for its growers. In that time period, it’s seen prices go through the roof and down the drain.
“When we started in 2001, growers were desperate to do something different,” says Prince, the co-op’s president. “When prices collapsed in the fall of 2000, many farmers put their cotton on a basis contract and the prices kept falling. Some of them rode the market all the way to the bottom with a trail of margin calls along the way.”
Four years later, Prince is more convinced than ever to the importance of belonging to a cooperative.
“You have to look at it over the long haul,” Prince says. “When you do that, you’ll see the performance of a cooperative is much better than most growers could do by marketing the cotton themselves.”
Noting some dissatisfaction among members last year, Prince says that “when cotton is 75 cents a pound anyone can market it. But when the market is ranging from the 30s to the 50s, an individual would have to get into the future’s market and that requires deep pockets.
Prince says the co-op has been able to attract and increase its membership each year by offering premiums based on quality.
“Each grower is paid their own premium based on his cotton,” Prince says, “not on what the whole pool averages.” Debra Lyle, the co-op’s manager says, “Premiums are paid yearly based on what the market is paying and in turn we give that back to our producers”. “In addition to co-op premiums, our producers’ individually receive any government premiums they are eligible for base on USDA classing. This year we will advance growers the loan rate of 53.30 plus 300 points equity, in addition to any government premiums and co-op premiums they may receive on their cotton”, says Lyle. Lyle continues to say, “Our growers are happy to see, in there initial payment any government premiums, pool premiums and 300 points equity. We also strive to pay our producers as quickly as possible within two weeks from ginning. The grower is basically getting 85 to 90 percent of his money by the end of the calendar year and the balance is paid throughout the marketing year as the futures market offers opportunities.”
Last year, the co-op paid an average premium of 2.32 cents per pound. “The premiums did not go into a pool,” Prince says. “They were paid directly to the producer who grew the quality cotton.”
Similarly, the cooperative individually takes out the first month warehouse charges from the initial advance. The practice allows growers to find the least expensive, yet approved, place to store their cotton and save money for himself and in the long run the co-op as a whole.
Bypassing merchants, the co-op’s cotton marketer is able to sell to the mills around 250 points above the futures price, versus a situation where cotton is marketed through merchants. “That’s a 550 to 600-point swing in basis right there,” Prince says “We still have to pay a marketing fee, but it’s nowhere near the shift in basis and we offer premiums.” Lyle says “we also export around 50 percent of our crop allowing us to benefit from Step II money when available.”
Prince says: “It gets back to our philosophy. We know we’re not always going to be able to capture the top of the market, but if we can get in the top third of the market, we’ll do okay in the long run.”
He offers last year as an example. The market jumped based on China’s involvement. “If you were doing any kind of conscientious marketing, that jump was hard to capture.”
Going back to its first year of operation, Prince cites another benefit that continues today. The co-op redeems cotton from under the loan with certificates, which do not affect payment limitations. “There’s a $75,000 payment limit on LDP money per entity,” Prince says. “If you look at our first year, it would have taken a grower only 535 bales to hit their payment limit since we averaged 28 cents per pound on LDP monies.”
In marketing of its growers’ cotton, Quality Cotton Cooperative strives to keep expenses to a minimum. They have a small office in Plymouth, N.C. with two full-time employees. “We try to get the most money back to the growers as soon as possible,” Prince says.