Anticipation is running high as harvest approaches in many areas of the Cotton Belt. Naturally, farmers are thinking “outside the boll” about how their cotton will yield, how it will grade and what type of return on investment they can expect. This month, we are encouraging them to also think “inside the boll” where the cottonseed lies. Unfortunately, decreased cottonseed prices have challenged the industry to look for creative ways to make more money from this product. To show its support, Cotton Incorporated recently approved a $100,000 increase to its 2017 Cottonseed Marketing budget line.
“With the large crop this year and the closing of a couple of oil mills, there is a dire need to create demand for cottonseed in the dairy feed industry,” says Tom Wedegaertner, director of cottonseed research & marketing for Cotton Incorporated. “The goal is to stimulate increased demand to help stabilize the price and prevent any further decline.”
A few years ago, former Texas A&M graduate student, Wes Regmund, says his “What if?” cottonseed moment struck as he contemplated topics for his master’s thesis. Having grown up in a cotton-producing area south of San Antonio, Texas, he always had a fondness for the crop although his background primarily was in livestock.
“Initially, my interest in risk management using futures markets led to discussions with Texas A&M cotton economist Dr. John Robinson and livestock economist Dr. David Anderson on the growing use of cottonseed in cattle feeding rations but with no real options for feeders to manage prices,” Regmund says.
“At the time, I had my Series 3 brokerage license to trade futures contracts, and then I spent a summer at the Chicago Mercantile Exchange working in the commodity research and development department.
“We soon dove into discussions with the Texas Cotton Ginners’ Association. The project evolved into looking at cross hedging from the gin’s perspective because it is the first to have possession of the seed and then sell it either to mills or livestock feeders. The TCGA was helpful in putting together a survey we sent to its members to gather information. We also thought this concept might be beneficial for farmers since cottonseed sales typically cover their ginning costs. I believe cross hedging whole cottonseed is a unique marketing approach with potential value for a lot of people.”
If this topic piques your interest, check out the fruits of Regmund’s efforts on page 6 and perhaps spark your own “What if?” moment.
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