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Lower cottonseed weights troubling

BILOXI, Miss. -- In a perfect world, says Randy Dismuke, a cotton variety would satisfy everyone’s demands — growers, ginners, oil mills, textile spinners, and other downstream users.

“Unfortunately, it’s not a perfect world and we don’t yet have a variety that’s a ‘perfect 10,’” the senior vice president for Delta and Pine Land Co., Scott, Miss., told members of the Southern Cotton Ginners Association at their summer conference.

The ginners, many of whom are also growers, had asked a panel of industry leaders to address the issue of why hugely popular, and widely-planted, new cotton varieties have significantly less seed turnout than conventional varieties.

Cottonseed removed in the ginning process represents a significant source of revenue to ginners, and reduced seed tonnage from newer genetically modified varieties has been cutting into their bottom line.

Also, traditionally, the seed retained by the gin has offset the cost of ginning for the grower, a scenario that’s becoming more difficult to maintain as ginning costs rise and seed weights/revenues decline.

Seed company perspective

“Highly respected breeders tell me a perfect cotton variety hasn’t been found, and likely won’t be found,” Dismuke said. “But we’re trying to get as near-perfect as we can.”

In the last three years, he noted, Mid-South cotton acreage has been fairly constant, about 3.5 million acres. Lint yields have increased substantially, with record yields in 2003 and 2004.

But ginners complain that the chart-topping yields have come with a downside — they haven’t been getting as much seed per bale.

“A Cottonseed Digest study shows the 10-year trendline is down,” Dismuke said, with a 14 percent decrease from 1995-96 to 2004-05. From 2003-04 to 2004-05, there was an 8 percent decline in seed yield.

“Our primary objective in variety selection is profitability potential for the grower,” he noted. “The key traits our breeders look for in early selections are yield and fiber quality. In those early stages, seed size and gin turnout are not normally a factor in selection; those are things we look at later.”

For the company’s enormously popular 555 variety, he said, trials showed lint yield increases of 15 percent or more compared to previously most popular varieties, but seed count averaged about only 5,800 per bale over an eight-year period, Dismuke said.

This may be an indication of where varieties are going, he noted, and most growers, given the choice, will opt for yield over seed. “But if we’re able to bump yields another 15 percent to 20 percent, then the issue of yield versus seed is something we’ll have to look at in terms of the marketplace.

“We want our products to satisfy as many needs of our customers as possible.”

Oil mill perspective

“One of the biggest challenges I see facing oil mills and the ginning industry is the seed derived from today’s popular genetically modified varieties,” said Sammy Wright, vice president, Chickasha of Georgia, Tifton, Ga.

Seed weights per bale “have dropped fairly dramatically” in some areas of the country, he said.

“These smaller seed are much more difficult to delint and dehull in the milling process, and they contain quite a bit less oil. This reduces the value of the seed to the crusher.”

In the Southeast, he said, “We’ve been averaging 300-305 pounds of oil per ton of cottonseed; now, we’re down to about 280 pounds of oil.

“With 25-cent oil, that means roughly $5 to $6 less in crush value per ton of cottonseed. While that may not sound like a lot, in tight market times it can be the difference between making money and losing money. Lower seed weights also reduce the amount of seed available to ginners to convert to cash flow income.”

In many cases today, returns to ginners from seed will not cover the cost of ginning, Wright said.

“How much longer can the ginning industry operate under the scenario of ginning for the seed, when the seed don’t return adequate value.”

“I wish I had the answer, but I don’t,” he said. “I think it’s safe to say, though, if we don’t see a drastic change upward in seed yields, economics will force us to make some hard decisions as to how we operate our gins, or we won’t be able to survive.”

In 1980, Wright said, there were 74 operating oil mills in the U.S.; today, only 13. “These numbers speak to the radical change we’ve seen in our business.”

What does this mean to ginners? “For one thing, if you’re not in close proximity to a major milk shed, you’d better hope you can keep a viable oil mill presence to help consume some of that seed. If not, the fundamental laws of supply and demand can get pretty ugly

Ginner/grower perspective

“We’re fighting for our survival,” says B.B. Griffin, chairman of the board, Southeastern Cotton Ginners, Lewiston, N.C.

“The number 1 challenge in the ginning industry is, how do I make a profit? Today’s soaring fuel/energy costs and other rising expenses make profits increasingly harder to achieve.

“With today’s seed prices, we must charge a fee in addition to the value of the seed, and we must run our gins more efficiently than our competitors.”

From the 1960s through the 1980s, much of the cotton left the Southeast and remaining gins handled very little of the crop, Griffin noted. “On a good day, we’d gin 50 bales. We grew cotton because we had a gin, and lost money on the cotton. We ran a gin because we grew cotton, and lost money on the gin.”

In the 1990s, cotton returned “with a vengeance” to the Southeast, as much as 3 million acres. Some older gins remained and upgraded. Most of the new gins that were built are grower owned, and have warehouses at the gin site.

“A lot of gin owners use their gins as loss leaders and their warehouses as profit centers,” Griffin said. “This has made it difficult for independent warehouses to survive. Private, small warehouses are struggling right now.”

The Southeast has the lowest value for cottonseed in the entire U.S., he noted. “The reason: we have only a few oil mills and limited whole seed markets. We have to be $10 to $15 cheaper than the Mid-South to compete for seed sales in the upper Midwest. Cows are moving west, and we’re losing our dairy customers in the northeast.”

The big question today, Griffin said, is “How much seed can we get from a bale of cotton — with the new varieties, are we selling less seed than we buy?”

Last year, he said, early turnouts from a widely-planted variety were as low as 550 pounds per bale. “And after it’s dried, how much less do you really have? If you’re selling less than you’re buying, that eventually requires some very ‘creative’ financing.

“If you’ve got a variety with a very high lint turnout, you’re likely to have a very poor seed turnout. You can’t have it both ways.” Shrinkage associated with storage can be in the 3 percent to 5 percent range, depending on moisture content when seed goes in the storage house, he said.

“And if you store large amounts of seed on the premises — in my case, more than 10,000 tons — you’ve got to go out and buy more insurance, which further adds to costs.”

Most ginners are also growers, Griffin noted, and the lower the value of cottonseed, “the more ginners are taking it on the chin.

“But sooner or later, it’s going to come out of the grower’s pocket through higher ginning costs. So the grower has to make a decision as to what he wants most: Do I want more yield, less seed, and higher ginning costs, or vice-versa?

“If we’re going to stay in the whole seed business, we have to get answers to some of these questions. We can’t run soybeans or corn through our cotton gins. We ginners are more dependent on the upcoming farm bill than growers — we need a viable cotton industry in the U.S., and we’re going to take it on the chin of we don’t get a favorable farm bill.

“We need to step up and be very proactive in supporting our cotton industry political action committees. We’ve got to get a good cotton title passed,” Griffin said, “or we’re all going to be in a bind.”

A changing perspective

“The only way we’ve been able to keep costs down and stay in business is to gin more cotton and supplement revenues with warehousing, sales of products, etc.,” says Chris Breedlove, general manager, Olton Co-op Gin, Olton, Texas.

“Gin numbers are decreasing, but volume is going up for the gins remaining, so the efficiencies of scale have increased.”

In west Texas, Breedlove noted, “Our seed rates have actually gone up in the last few years, from 745 pounds per bale in 2002-03 to 780 pounds in 2004-05. At $115 per ton, that’s about what’s paid to gin a bale of cotton.”

In the last 10 years, he said, the number of bales processed per gin has doubled. But costs have steadily risen.

“Variable costs, fixed costs, and administration for west Texas run $47.50 to $52 per bale. With seed at $115 per ton, you’re already in the hole.”

To try and stay profitable, he said, ginners have to find ways to hold the line on variable costs.

For the Olton Gin, Breedlove said, cottonseed is a financing tool. “Oil mills pay us once a week for cottonseed, and that helps our cash flow.”

With over 30,000 tons of seed per year coming out of the gin, he said the board of directors decided to begin direct-marketing the whole seed, “and we’re now a major player in that market. There are a lot of challenges, and it requires a knowledgeable staff that’s comfortable storing and handling whole seed — because everything you can think of can go wrong.”

There are many large dairies in the area, Breedlove said, “so a market was already there.” Even so, “We end up shipping a third of our seed to California dairies; 6 percent goes to local oil mills; and the rest to the truck market. If you want to be in the whole seed market, you have to spread your risks by knowing your markets and selling where you can get the best price.”

But with declining per bale cottonseed turnout, he said, “We have a lot of gins that still can’t make it on hundredweight calculations for ginning, and they’ve changed the way they charge for ginning. Now, we’re charging $1.65 per hundredweight, plus $16 per bale.

The advantage of a two-tiered, structured ginning charge, he said, is that the per bale charge helps offset variations in turnout — “you’re guaranteed that charge, and your income will steady out.”

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