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Cottonseed in gin’s revenue stream

More astute marketing of cottonseed can provide ginners an opportunity to increase their revenue stream, says Paul Scruggs, who spoke at the annual meeting of the Southern Cotton Ginners Association at Memphis.

“I’m surprised at how little attention some ginners give to this, since it’s such a vital part of their business,” says Scruggs, cottonseed marketing specialist with the Lansing Trade Group, Overland, Park, Kan., which trades whole grains, feed ingredients, biofuels, freight and many other commodities within North America and internationally. Lansing markets 400,000 to 500,000 tons of cottonseed per year.

Of the 4.2 million tons of cottonseed produced in the U.S., 2 million are crushed, 2 million are used by dairies, and the remainder is shipped overseas.

There has been a huge change in the industry in recent years, he says, resulting in a great deal of volatility in markets.

“Cottonseed prices can often move as much as $100 per ton over the course of a year. This volatility creates risk — but it also brings opportunity. For a 30,000 bale gin, a $100 price move can represent an additional $100,000.”

Cottonseed now constitutes 15 percent to 20 percent of the gross revenue per bale of cotton, Scruggs says, and “our industry needs to find ways to promote greater use of this important product.”

To maximize revenues from cottonseed, he says, ginners should have a game plan for marketing.

“A lot of people have a value in mind that isn’t realistic. You need to be willing to change your opinion, to act on facts rather than impulse. There are many informational resources available, including brokers, merchandisers, and oil mills. You need to know the nearby market on a weekly, or even daily basis, because almost everyone trades off this market.

“Ask questions: Are dairy utilization rates up or down from last month or last year? By how much? What are crush margins doing? What percentage of demand is covered going forward? Are gins unsold going forward? Are dairies profitable now?”

Ginners should keep historical data on prices to spot seasonality trends, Scruggs says.

And they should carefully check out those with whom they’re dealing.

“You have not only equity risk, but receivables risk, so know who you’re doing business with,” he advises. “Check their references, their Dun & Bradstreet report, and information available on the Internet.”

Ginners should also make available as many loading options as possible: ‘barge, rail, oil mill, van, container storage — all trade at different prices,” Scruggs says. “Each option gives you a different market in which you can sell.”


TAGS: Cotton
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