In recent years, the South has been no stranger to cotton gin closings and consolidation. That has led to a number of issues and questions for the cotton industry.
Data on how best to address those issues and questions is being collected and analyzed by Matt Fannin, LSU AgCenter agricultural economist, and his colleagues.
Early in August, Fannin received news that a USDA grant would extend his research by two years. According to the LSU AgCenter, the project “will identify cost savings associated with alternative cotton harvest and transportation options and identify optimal ownership of new technology to improve efficiency in the marketing supply chain for cotton in the Mid-South.”
In July, Fannin made a presentation at the summer meeting of the Southern Cotton Ginners Association (SCGA). Shortly after, he spoke with Delta Farm Press about his findings, the impact of new cotton technologies and gin structuring. Among his comments:
On the USDA grant…
Fellow LSU AgCenter agricultural economist “Ken Paxton and I focused on the issue of transportation of cotton from field to gin and the concerns over the availability of gin infrastructure. That’s particularly true of areas where gins are closing because of reduced cotton acreage. Will there be sufficient ginning infrastructure close enough for historical cotton-producing regions to remain viable?
“Basically, our results so far have shown that despite there being fewer gins, the gins still in business are extending the distance they’ll haul cotton. They have excess capacity to do just that. In our interpretation, there is still money to be made from cotton grown much farther from the gin than has been historically true.
“We received a new grant – which starts in September and runs two years – that extends our existing research. The new project will look at the changing technology of cotton harvesting with the new on-board module harvesters. We’ll see how that affects transportation in terms of the different issues the gin must take such as retrofitting to handle the John Deere round-bale modules and half-modules from Case IH. How does that impact the types of hauling equipment used? What about dedicated module trucks versus flatbed trailers for hauling to the gin?
“Also, we’ll look at ownership structures and whether gins should be in the business of owning their own trucks or if it’s best to outsource.”
On the SCGA presentation…
“I spoke on a couple of key areas.
“What we saw from surveys is that on average gins have about nine owners. But with gin ownership what matters for decision-making – things like investing in new, expensive equipment and retrofitting – is often driven by the owners with the largest shares.
“On average, the survey results show if a gin has more than two owners the owner with the largest share carries about a quarter – actually, 24 percent – of the ownership.
“Even in larger, co-op model gins where there is a large number of owners, typically there are two to four very influential owners. They influence most of the gin management decisions and major investments.”
On what the survey found regarding transportation…
“From the last survey we did for the 2007 season, the average longest distance hauled from cotton field to gin was approximately 36 miles. Some gins may have hauled 75 or 90 miles, others only 15 or 20 miles.
“In the 2010 season, the average longest distance hauled increased to 43 miles – another 7 miles. The result shows that despite reductions in gin numbers, we’re seeing the gins still operating go out and pull cotton in much farther away from the gin.
“That should provide some level of comfort to producers in areas that don’t have gins nearby any longer. It alleviates some fears – producers can contact a gin from farther away and still have their cotton ginned.
“Related to that, in 2010, we also found that about 16.5 percent of Mid-South gins’ cotton came from operations more than 25 miles from the gin. That’s almost equal to the percent of cotton, 17.5, coming from less than five miles from the gin.”
Did you look at other cotton-producing regions?
“No, this was just focused on the five states in the Mid-South. That was the geographic area of interest of the grant.
“We have been piggybacking off Tommy Valco’s (Cotton Technology Transfer Coordinator, USDA-ARS) once-every-three-years ginning cost survey. We added some additional questions on the backside of his survey. He’s been collecting general ginning cost information since 2001 through cooperation of the regional ginning associations.
“So, it wouldn’t be difficult to ask for these data from some of the other cotton-growing regions. That would work as long as we got permission from regional ginning associations to do so.”
On gin closings…
“Gin closings aren’t a new phenomenon. Gins have been closing for decades – largely a function of increased capacity and efficiency of gins. As older gins are closed, cotton shifts to the remaining gins.
“So, is there a point where ginners say ‘that’s too far’? The results suggest, so far, the answer is no.
“There are costs associated with not utilizing unused capacity. It’s sort of like if you operate an airplane at a quarter of its capacity for a short period of time rather than just grounding the plane. There are fixed costs already invested in the airplane.
“In that sense, gins have a certain amount of fixed costs they’ve invested in recent years. Running more cotton through them helps to spread out that fixed cost over more bales ginned. Those with newer technology, newer gin stands, lint cleaners, dryers, will want to utilize the equipment and run cotton. As a result, they’re willing to travel a bit farther to get that cotton.
“Of course, at some point, if fuel costs increase dramatically, there has to be a discussion about whether the transportation costs become too burdensome. So far, though, that doesn’t appear to be a factor.”
On more findings related to on-board module harvesters…
“Of the gins that responded to the survey, the percent of total bales that came from on-board module harvesters was about 9 percent.
“We asked what percentage they expect to gin in 2011 would come from on-board module harvesters. We made no distinction between round or half-modules. That number was 21 percent. So, in a very short time, they’re expecting to go from under a tenth to over a fifth of their bales to come from on-board module harvesters.
“At least in the short-term, there is still a need for the module trucks. In talking to ginners, for short hauls it makes more sense to use their module trucks to pick up on-board modules. As the distance for pick-ups increase, it may make better economic sense in the future not to send a dedicated module truck out to pick up just a small number of bales. It may make more sense in those cases to put them on a flatbed trailer and haul them to the gin.
“In the future, gins will have to make strategic decisions on what and how much to invest to handle on-board modules. It’s going to be an expense and the reality is – as anyone could see at the latest Mid-South Gin Show in Memphis -- there are a lot of technologies available to break down the bales inside the gin. Further, some of the loading equipment looks kind of like it could handle round bales of hay, others look different.
“It will be interesting to see what equipment becomes preferred in the future. Will a number of these new technologies co-exist?
“As researchers, we must ask these questions. If the trends continue, three or four years from now, we may see 40 or 50 percent of the cotton coming to a gin is from on-board module harvesters.”