Cotton Cooperatives

Farmer Cooperatives in the United States

Cooperative Information Report 1, Section 18

United States Department of Agriculture

Agricultural Cooperative Service
CONTENTS

Cooperative Gins ......................................................................... 1

Cooperative Compresses .............................................................. 4

Lint Marketing Associations ......................................................... 4

Cooperative Cottonseed Oil Mills ................................................. 14

Future Challenges and Opportunities ............................................ 18

Cooperative Information Report I, Section 18 May 1985

i
American Cotton Growers weaves cotton into denim at its LittleJield, TX,

plant. Below, rolls of denim for blue jeans are beingpreparedfor shipment.
COth

Coopemlives

Numerous steps are required to prepare harvested seed cotton for

entry into marketing channels as baled lint and cottonseed products.

Farmer cooperatives play a major role in merchandising American cotton

and cottonseed products, as well as performing and coordinating most of

the services of the marketing system. Cooperatives are organized around

four general functions: ginning, warehousing, lint merchandising, and

cottonseed processing.

Cooperative Gins

Ginning is the pivotal function between the harvesting and the marketing processes for cotton and cottonseed. Cotton farmers manage all

production and harvest activities up to the ginning stage, which is usually

organized as an off-farm industry. Ginning tends to be a specialized function because of its substantial overhead costs and scale economies. The

fact that ginning is a part of harvesting but not under the farmers’ supervision is one of the major reasons for organizing cooperative gins. The

first major expansion of cooperative gins occurred in the period 1919 to

1939. Growers’ had been faced with inadequate ginning capacity for

securing prompt turnaround of their seed cotton wagons during the busy

and short picking season. The cooperative gin permits greater member

control over policies and practices, which is particularly important in

maintaining fiber quality during the ginning process.

Gin managers sometimes provide ancillary services for the trading

of cottonseed and cotton. During the 1930’s, cooperative gins began to

pool members’ cottonseed and achieved direct access to the oil mills.

Cooperative gins gradually began to establish federations to crush their

own cottonseed. On the cotton lint side, cooperative gin managers

1
Early cotton gin associations.
expedite the transfer of documents and forward samples to the classing

offices. The gin managers help keep records of their members’ bales and

qualities. Much of the cotton ginned by cooperatives is merchandised by

regional cooperative marketing associations, Cooperatives have

developed effective coordination of services between gins and marketing

associations.

The number of cotton gins gradually declined during the 1970’s.

While total capacity of ginning has also declined, the capacity per gin has

increased. The western sections of the Cotton Belt tend to have gins of

larger capacity than the Midsouth and southeastern areas. The cooperative share of cotton ginning in terms of numbers of gins in 1981 was 414

out of 2,186 firms or about 19 percent. The share of total bales ginned

fluctuates from year to year but is usually larger than 20 percent because

of a large concentration of cooperative gins in many of the higher capacity utilization areas of the Cotton Belt.

The gradual decline and regional shifts in cotton production are not

the only factors that influence the capacities and numbers of gins. Technological change since the 1960’s, particularly the widespread adoption

of mechanical picking, has substantially affected the ginning industry.

The mechanization of picking concentrates seed cotton deliveries to the

gin in a much shorter period of time, which places greater pressure on

ginning capacity for prompt turnaround of trailers. The expanded use of

seed cotton modules has greatly reduced the peak demand problem for

many gins. New cotton handling technology for modules and other

improvements, such as the universal density bale press, have influenced

the trend toward larger and fewer gins. Since the late 1960’s, there has

been significant merging of cooperative gins and many of today’s

centralized and modernized facilities are cooperatively owned and

operated.

In many of the southeastern and delta areas of the Cotton Belt,

cooperatives that were originally organized to gin cotton have diversified

into new lines of business. As members diversified into new crops such

as grain or rice, their gin often became a local marketing association for

these commodities or a handler of farm supplies. Some local associations

terminated ginning operations due to a lack of member volume, but cotton ginning can be credited with introducing and demonstrating the

value of cooperation to many farmers who shifted to other commodities.

Cooperative gins enable members to benefit from greater control

over ginning-the part of harvesting that most farmers cannot economically own and operate individually. Cooperative ginning also has fostered

similar cooperative organizations for other cotton industry services, as

well as its application to other types of commodities.

3
Cooperative Compresses

Cooperatives own about 20 percent of cotton compress and warehouse capacity and handle between 30-35 percent of the total amount of

bales stored. Cooperative compresses are organized both as separate

associations and as divisions of cotton marketing associations. The

integration of warehousing with the merchandising of cotton has been a

distinctive feature of cooperative enterprise, whereas traditionally these

two functions have been organized as separate industries. The compress

and warehouse industry is responsible for storage, weighing, and bale

recompression for long-distance shipping; it also issues warehouse

receipts. The latter service provides a negotiable document on every bale

and enables the title transfer process to be carried out separately from the

physical distribution of bales.

Cooperative involvement in the cotton compress industry has benefited producer-members both in terms of net savings and in providing

greater assurance of convenient service. There are also advantages of

improved coordination between warehousing and merchandising. For

example, cooperative pooling and lint merchandising have reduced the

incidence of repeated sampling of bales, which can be disruptive to

compress operations. In addition, shipping savings are realized when

marketing associations can consolidate shipments by a particular warehouse rather than spread throughout an entire compress facility. Further,

computerized data processing is utilized at lower per bale costs by serving

both cooperative merchandising and warehousing operations.

Lint Marketing Associations

Cooperative cotton marketing associations merchandise between

30-40 percent of the U.S. crop in both export and domestic markets.

Marketing associations vary substantially in size, with the smallest providing the basic functions of pooling and the assembly of uniform quality

lots according to Government classification, Organizations that carry out

these basic services are The Carolinas Cotton Growers Association,

Raleigh, NC; and the Producers Marketing Association, Levelland, TX;

as well as some smaller countywide cooperatives in the Southeast. Four

large regional associations account for most of the cooperative volume:

Staplcotn, Greenwood, MS; Calcot, Ltd., Bakersfield, CA; Plains Cotton

Cooperative Association (PCCA), Lubbock, TX; and Southwestern Irrigated Cotton Growers Association (SWIG), El Paso, TX (table 1). The

key distinguishing characteristics of these marketing cooperatives is their

4
Cooperatives initiatedprograms to class producers’cotton, conducting classing

schools. Automated sampling equipment helped speed up the cotton classing

process.
Table 1 -Regional cotton marketing associations

Name Location Members Year Established

Staplcotn Greenwood, MI 2,200 1921

CALCOT, Ltd. Bakersfield, CA 3,800 1927

PCCA Lubbock, TX 20,000 1953

SWIG El Paso, TX 1,800 1926

fiber testing and export merchandising to all major domestic and foreign

markets. These services have enabled farmers to share in value-added

earnings and have contributed to the industry by increasing farmers’ concern for quality and uniformity of cotton that is in greatest demand by

textile mills worldwide.

Cooperative pooling programs are an effective method for farmers

to sell their cotton. Pool earnings have consistently exceeded the average

prices that producers received from local market selling. In the customary buy-sell method of trading in local markets, producers make individual and distinct transactions. Producers’ involvement with the cotton

is terminated at that point. By contrast, the members of a pool receive a

seasonal average price for like qualities of cotton so that risk in the timing

of sales is greatly reduced. Most cooperatives also offer a call pool for

growers who want to fix their prices to the futures market while still having their bales physically handled and merchandised by their cooperative.

In addition, the opportunity for greater earnings creates incentives for

farmers to plant varieties that yield more marketable qualities of cotton.

Furthermore, producers can reduce time and effort expended in market

search that can be incurred when doing their own trading. When farmers

organize the market search function on a cooperative basis, they have a

staff of cotton marketing experts that devote their full time to identifying

and securing the best opportunities in the marketplace. The cooperative

also performs more efficiently the responsibilities involved with handling

cotton after delivery to the gins than if each individual grower administers and contracts these tasks.

Cooperatives initiated several important innovations in the evolution of the present cotton marketing system. When the cooperative cotton pools were established in the 1920’s, they provided a vehicle for pricing cotton according to quality. This was a service that the consignment

method of selling had provided in the 19th century but that was dying out

with the transition to a local market system. Cooperatives have continued to improve their pooling programs in regard to efficient pricing for

quality by carrying out fiber testing and classifying. These services enable

cooperatives to deal directly with textile mills. Furthermore, the

cooperatives developed specialized quality groupings and test fiber

6
Fiber testing has gradually become computerized, enabling cooperatives to

keep detailed records for their members and to more effectively assemble

uniform quality lotsfor their textile mill customers.
Littlefield (TX) Farmel

Cooperative Gins has

modernized with an

automated handling

system for receiving see

cotton. Inside the gin,

seed is separated

from the lint.

8
characteristics that are not provided by government classing but demanded by textile mills.

Staplcotn set up the first set of standard types for staples. As the Cotton Belt expanded to the west, cooperatives were able to identify distinctive features of the cotton produced in their region, and established quality types according to textile mill demand specifications. Calcot established several type names such as Acme, Spur, Salo and others that

cooperatives can supply to textile mills in large uniform quality lots.

SWIG has done similar work in promoting the cotton distinctive to its

region, such as the extra long staple varieties. The Plains Cotton

Cooperative Association (PCCA) operates throughout the large geographical area of the Southern Plains, which produces mostly short-staple

varieties with more diversity of quality than other Cotton Belt regions.

Their major challenge has been to quickly and effectively perform largescale fiber testing, and to this end they have made important adaptations

in instrument testing.

In Cotton Belt regions where many producers prefer local market

selling to pooling, cooperatives can improve the competitiveness of these

markets by centralizing them and gaining access to more bids for each

producer’s bales. The major mechanism for this approach is electronic

marketing. PCCA has been involved with electronic marketing since

1961 and by 1975 developed their program into a fully computerized system known as TELCOT.

Associations that market lint have a history of bringing innovations

to the shipping of cotton that have helped reduce costs. During the

1960’s, PCCA negotiated a program of reimbursement from the railroads

on bales that could be more efficiently shipped by truck from the gins to

the warehouses. Calcot is an industry leader in applying new

transportation technology to long-distance shipping. It was a leader in the

development of containerized shipping, which has benefited the cotton

industry both by reducing the costs of handling and by improving

maintenance of fiber quality. Calcot was also one of the first cotton

shippers to use piggyback service (truck on rail) to move cotton to the

textile mills. Finally, what is less an innovation and more a benefit of

cooperative organization is the capture of benefits for growers from rail

contract negotiation that is authorized under the Staggers Act of 1980.

The largest share of cooperative receipts of cotton is sold directly to

textile mills. The largest constraint to direct cotton merchandising is the

diversity of qualities demanded by thousands of textile mills throughout

the world. Coverage of these markets requires sales representatives in

the major textile industry centers. For many years each regional cooperative provided its own system of access to the mill buyers. These individu9
al efforts were successful but created duplication. In some cases the

volume and types of cotton handled by an individual cooperative would

not support the expense of representation in some foreign markets.

The four regional cooperatives took a major step in strengthening

their marketing programs with the formation of Amcot in 197 1. Amcot is

an interregional marketing association that was organized without

merger or combination of regional member assets. Its primary functions

are to provide its member regional cooperatives with market information, greater global coverage for their different cotton varieties, and

arranging either domestic or export transactions. Each member cooperative makes its own sales decisions. The unique varieties and qualities of

cotton produced in each regional’s trade territory reduce the problem of

sales competition among members that in the past undermined other

interregional cooperatives. Prior to Amcot’s formation, each

cooperative’s sales representatives would ignore market opportunities

for varieties its growers did not produce, and the information was rarely

relayed to a cooperative that could use it. Amcot has opened several new

markets that in the past had escaped the attention of its members. Amcot

salesmen are present in all the major markets, and provide the textile

mill customers with a comprehensive range of cotton qualities.

Domestic Amcot sales offices are located in Charlotte, NC; Greenville, SC; and Atlanta, GA. Foreign offices are in Brussels, Belgium;

Osaka, Japan; Seoul, Korea; Hong Kong, and several other nations.

About 30 percent of U.S. cotton production (3.0 to 4.5 million bales) is

sold through these offices, and much of it is exported. Costs of operation

are shared by each of the four member cooperatives, and are allocated by

use of a volume-oriented formula.

Forward integration by producers into textile manufacturing has not

been widespread, but has been successfully carried out by American Cotton Growers (ACG), a cooperative in Lubbock, TX. Since 1975, this

organization has been producing high quality denim fabric that it sells via

a marketing contract to the Levi Strauss Company. The farmer members

of ACG supply the denim mill through a pooling program. PCCA provides fiber testing services for ACG, and merchandises all bales from the

pool that are not used in ACG’s textile manufacturing.

Cotton marketing cooperatives provide cost savings and opportunities for growers to share in earnings from merchandising and processing

activities. In addition, cooperative involvement in the global marketing

system generates information otherwise unavailable to growers. Ownership and control of marketing associations provide farmers with access to

fiber testing and price data, individual member records, and market analyses.

10
Cooperatives maintain da@ contact with foreign and domestic buyers. Below,

cotton is being loaded onto piggyback vans for long-distance shipping.
Open-end spinning weaves cotton fibers into denim in American Cotton

Growers Littlefield, TX, plant. Inset, denim fabric is being wrappedfor

shipment.

Cooperative Cottonseed Oil Mills

Cottonseed processing is an important industry to the cotton farmer.

About 8.00 pounds of cottonseed are produced per bale of cotton, with

about 1 percent needed for replanting. The cottonseed processing industry raises the value of the cotton crop by an estimated 17-19 percent.

Many growers have captured a larger share of this added value by means

of cooperative cottonseed processing.

The cottonseed crushing industry has several unique characteristics.

Unlike other oilseeds, cottonseed is a commodity byproduct, as its supply

is determined by conditions of demand and supply for lint cotton. As a

consequence, the cottonseed crushing industry can experience protracted periods of relatively high or low earnings if the cotton market is affecting cottonseed supply in the opposite direction of oilseed demand. Furthermore, cottonseed provides oil, meal, hulls, and linters. Linters have no

counterpart in other oilseeds, and are an ingredient in products such as

paper, yarn, and plastics. Oil and meal, however, account for about 85

percent of the value of processed cottonseed.

A distinctive feature of cottonseed crushing is the process known as

miscella refining. This technology allows the processes of oil extraction

and refining to be conducted as a single processing stage, and provides

significant cost savings over conventional refining techniques. Miscella

refining is not applicable to other oilseeds. The cooperative oil mills in

the western part of the Cotton Belt are generally miscella refiners. The

once-refined cottonseed oil they produce meets the requirements for the

export market, and much of their volume is shipped overseas from the

Texas gulf and West coast. By contrast, the cooperatives in the delta

region produce and merchandise crude cottonseed oil because of their

proximity to many of the vegetable oil-refining companies.

The cooperative share of the cottonseed crush has been steadily rising since the 1950’s. Six cooperative oil mills were established during the

1930’s in an industry of several hundred mills and numerous firms. By

1958 cooperatives accounted for about 12 percent of the cottonseed

crush and in the 1980’s they are expected to crush well over 40 percent of

the total (table 2). Most of the increase in the share of cottonseed

crushed has been the result of a decline in the total capacity of the industry. Cooperatives have compensated for some of the plant closings and

departure of firms by increasing their capacity. The number of cooperatives has not changed much over time, reaching a peak of 19 in 1965,

with 15 in operation most recently. Three cooperatives operate multiple

plants (table 3).

14
Table 2-Cooperative share of total U.S. cottonseed crush

Year Total mills Total crush Co-op crush Co-op share

1971-72

1972-73

1973-74

1974-75

197576

1976-77

1977-78

1978-79

1979-80

1980-81

1981-82

1982-83

Number (1,000 tons)

115 3,960

- 4,880

- 4,792

- 4,226

- 2,952

97 3,499

- 4,313

- 4,127

74 4,233

- 4,076

69 4,575

- 3,800

0,000 tons) Percent

1,093 28

1,432 29

1,374 29

1,436 34

1,042 35

1,236 35

1,604 37

1,511 37

1,643 39

1,494 37

2,028 44

1,415 37

Table 3-Cooperative Cottonseed Processing Associations, 1983

Association Plant locations

Year

organized

1. Delta Oil Mill, Inc.

2. Helena Cotton Oil Company

3. Luna Cotton Cooperative

4. Ne-Tex Cooperative Oil Mill

5. Osceola Products Company

6. Pecos Valley Cotton Oil Mill

7. Plains Cooperative Oil Mill

8. Planters Cotton Oil Mill

9. Producers Cooperative Oil Mill

10. Ranchers Cotton Oil

11. Selma Oil Mill

12. SWIG Cotton Oil Mill

13. The Union Oil Mill

14. Valley Cooperative Oil Mill

15. Yazoo Valley-Minter City Oil Mill

Jonestown, MS

Helena, AR

Deming, NM

Wolfe City, TX

1. Osceola, AR

2. Silkeston, MO

Loving, NM

Lubbock, TX

Pine Bluff, AR

Oklahoma City, OK

1. Frenso, CA

2. Bakersfield, CA

Selma, AL

El Paso, TX

West Monroe, LA

Harlingen, TX

1. Greenwood, MS

2. Hollandale, MS

3. Grenada, MS

1943

1942

1957

1939

1945

1960

1937

1979

1944

1950

1976

1934

1976

1950

1956

The capacity adjustments in plants processing cottonseed have

become more complicated because of the alternative of feeding whole

cottonseed to dairy cows and feeder cattle. This alternative is significant

during periods when the price of cottonseed oil is relatively low, as it was

in 1981 when about 25 percent of the crop was wholefed. This alternative

market has benefited growers most in locations where the ratio of crushing capacity to cottonseed production is low and close to livestock pro15


duction areas. When oil mills are merchandising rather than processing

substantial volumes of cottonseed, growers and ginners are foregoing

potential earnings from direct sales to the livestock feed market. This

potential gain is captured for growers and ginners when the oil mill is a

cooperative. In addition, a cooperative oil mill can improve grower

returns in the residual cottonseed feed market by coordinating sales and

by achieving more efficient allocation of cottonseed (quantities and qualities) for use in crushing and as feed.

Cooperative oil mills in Texas and Oklahoma have substantially

coordinated their cottonseed oil merchandising operations. In 1962 these

mills and several soybean processing cooperatives established a marketing agency called Soy-Cot Sales, Inc. In recent years the cottonseed

processors have leased storage tanks in the port of Houston. These facilities provide greater flexibility in shipping and enable Soy-Cot access to

more buyers for its members. Soy-Cot’s function is analogous to that of

Amcot, but its access to markets does not require several domestic and

foreign offices as is necessary with marketing cotton.

Future Challenges and Opportunities

The cotton industry will continue to change in response to both

market opportunities and competitive pressures. The most significant

competition will be from both industries producing synthetic fibers and

other cotton-producing nations. Although it is not definitely known what

the cotton industry will look like in the future, interfiber competition is

the dominant influence dictating the type and pace of change.

Several industrywide efforts seek to maintain or improve cotton’s

competitiveness. Much of the activity centers on the research and market

promotion work of Cotton Incorporated, a producer-financed organization established in 1971. In recent years the industry has been highly

effective in bringing together its diverse groups. There are also

specific types of competitive adjustments where the cooperative form of

organization and incentive structure is uniquely suited to make major

contributions to the competitiveness of American cotton. One involves

the coordination and streamlining of services for the assembly and

preparation of cotton. The other is concerned with how cooperatives

function as a bridge in reconciling diverse interests and in establishing

more direct price signals from textile mills to farmers.

Future coordination and streamlining of services may have its

greatest impact on the relationship between the activities of ginning and

marketing. The relatively low utilization of capacity in ginning, compared

18
Above, cotton is being unloaded and transferred to a warehouse of

STAPLCOTN, Greenwood, MS. Below, the world’s largest cottonseed oil

solvent extractor is operated by Plains Cooperative Oil Mill, Lubbock, TX.
with other industries, is the result of its functional relationship with the

cotton-harvesting operation. Ginning is the technological equivalent of

grain combining. Since cotton cannot enter marketing channels until

after it is ginned and baled, the process must be as fast as possible. For

the ginner’s part, there is pressure to have adequate capacity or flexibility

to provide prompt services to as many producers as possible.

In recent years the share of total off-farm handling and marketing

costs accounted for by ginning has increased. This increase has occurred

because of a decline in utilization of gin capacity. As a result, efforts are

being made to reduce capacity by means of gin consolidations and

improve utilization by extending the ginning season. The existence of a

cost differential could be applied efficiently to secure more volume for

extended ginning by charging lower fees to growers who are willing to

wait to have their cotton ginned. The farmer who wants his cotton ginned

immediately would pay a premium.

The tradeoff with lower cost ginning is the delayed opportunity to

sell cotton sooner. This tradeoff can be diminished by cooperative pooling. An extended ginning season would not jeopardize growers if their

gin handled only cotton that is pooled for marketing. Of course, the marketing association would encounter the same selling constraint as the

grower when confronted with delayed receipts of cotton from the gins.

However, the marketing cooperative is in a better position to effectively

allocate sales over time. Preliminary quality tests can also be made on

moduled cotton so if certain qualities are in immediate demand, the gins

could process these types first. Modules containing cotton not in

immediate demand could be ginned later.

A seed cotton pool could facilitate fiber blending at the gins to produce more uniform quality lots. A seed cotton blender has been in operation since 1973 at Associated Cotton Growers in Crosbyton, TX.

Although seed cotton is not pooled and there is no blending among producers’ lots, the Crosbyton operation has had significant quality-price

gains. Blending seed cotton is common in foreign countries where cotton

is sold before it is ginned. Although American farmers have been more

efficient than many of their foreign counterparts, the potential gains from

the seed cotton blending technology and a pooling program could

significantly enhance competitiveness in some areas of the Cotton Belt.

Cotton farmers operate in a commodity supply and demand environment that provides slight incentives for having a customer orientation

toward buyers. As with any product, the less frequent the contact

between seller and buyer, the lower the returns to providing improved

quality and specialized services. Marketing cooperatives have made

important strides in improving the communication of textile mills’ quali20
ty specifications to producers. Their fiber testing activity and Amcots’

successful development have been major advances. Depending upon the

intensity of interfiber competition, these activities may accelerate in the

future.

The commodity environment of price volatility cannot be avoided,

but the long-term prosperity of the cotton farmer will depend on providing ample supplies of uniform qualities of cotton to textile mill customers

at stable and competitive prices. The major weakness of a commodity

orientation is that it inhibits continuity in buyer-seller relationships that

synthetic fiber producers have successfully established with textile

buyers. Cooperatives have played an important part in overcoming this

particular weakness that cotton has had in competition with synthetic

fibers. What started as a price enhancer role during the 1920’s, cotton

cooperatives are now providing beneficial services to textile mill customers throughout the world. While the regional cooperatives are focusing

on meeting the economic needs of their producer members, Amcot

salesmen are concentrating their efforts on marketing services to the

buyers.

Organizations selling cotton take many forms. Cooperatives are just

one form but they provide a unique role in the trading system by virtue of

their producer membership and involvement. A less diverse trading system, one in which all trading with textile buyers was carried out by organizations external to the control and ownership of growers, would not be

beneficial to the industry. By having their cooperatives involved with global merchandising, cotton farmers have become more directly involved

with the economics of interfiber competition. The unique role of

cooperatives in all phases of the cotton industry, including cottonseed

products, will enable them to continue making important contributions

to the cotton industry.

Author/Bruce J. Reynolds, Agricultural Economist

21
U.S. Department of Agriculture

Agricultural Cooperative Service

Agricultural Cooperative Service provides research, management,

and educational assistance to cooperatives to strengthen the economic position of farmers and other rural residents. It works directly

with cooperative leaders and Federal and State agencies to improve

organization, leadership, and operation of cooperatives and to give

guidance to further development.

The agency (1) helps farmers and other rural residents developcooperatives to obtain supplies and services at lower cost and to get

better prices for products they sell; (2) advises rural residents on

developing existing resources through cooperative action to enhance rural living; (3) helps cooperatives improve services and operating efficiency; (4) informs members, directors, employees, and the

public on how cooperatives work and benefit their members and

their communities; and (5) encourages international cooperative

programs.

The agency publishes research and educational materials and issues Farmer Cooperatives magazine. All programs and activities

areconducted on a nondiscriminatory basis, without regard to race,

creed, color, sex, or national origin.