Cotton producers possess the specialized skill of sowing, harvesting, and handling this quality commercial crop. There’s no doubt that this is a profitable industry, with around $6.01 billion in production value as of last year.
Grown in 17 U.S. states that stretch across the southern half of the country, this cash crop is an in-demand raw material for several industries—with the textile industry being the most notable.
Although cotton is a popular commercial crop that results in high net revenue, it’s not immune to the agricultural market’s instability. Erratic weather, insect pests, and other external factors can leave you with less-than-desirable yields, affecting product prices. In some cases, the ever-fluctuating demand or volatile market can leave you struggling with financial risk.
To achieve a sense of stability, many cotton farmers opt for marketing strategies that provide some much-needed relief in these uncertain times. There are various cotton marketing strategies at your disposal—whether you adopt one or a combination of them depends on your unique needs.
Let’s take a look at some of them:
This is a legal agreement between two parties—the producer and the buyer—to sell or buy the cotton at some point in the future. This contract is customized to the parties’ preferences and outlines the price and date of the transaction in the future.
Forward contracts allow cotton producers to establish the minimum supplies needed and the pre-determined prices at which they’ll sell. As a risk management strategy, forward contracts lead to greater stability in cotton production since you’re guaranteed to sell the specified amount.
By setting the price floor, you can take the unpredictability out of this highly-volatile sector of the agricultural market.
Many cotton producers who want to eliminate the price risk and increase their profitability chances will opt for marketing pools. Simply put, these are farmer cooperatives of the cotton growers in the region.
This strategy is said to give the marketing pool greater bargaining power when settling their product. Additionally, marketing pools can open up newer markets for you to access and connect with buyers in.
Selling At Harvest
Instead of opting for hedging alternatives, many cotton growers opt for cash sales at harvest. This marketing strategy is fairly simple and involves selling your product to brokers or merchants after the harvest is complete.
Unlike other marketing efforts that begin before the product has been harvested, selling in the cash market involves waiting for cotton to harvest. While this technique exposes you to price risks, it eliminates the chance of not fulfilling your production contracts.
Start Risk Management Cotton Marketing Today
There’s no one-size-fits-all approach to cotton marketing—or for any cattle or commodities marketing, for that matter. However, selecting the right risk management marketing strategy is essential to success in the agricultural market.
Enjoying profitability and returns relies on picking a marketing technique that suits you. Chris Robinson brings years of experience and unparalleled expertise to you through our monthly subscription letter.
Through our print and live audio services, you can develop a customized marketing strategy that yields long-term success.