How much ginning capacity will the U.S. cotton industry lose with farmers' headlong rush into more grain? The short answer: Nobody knows for sure. Many gin owners already have asked themselves how far down their own bale count can slide before it's time to lock the doors.
Cotton acreage has dropped below 10 million acres. How that number will pan out for any given gin depends on too many variables to make broad assumptions. How old is the gin? How well is it capitalized? What's the debt load? Just as important, how much additional risk will owners assume until cotton rebounds?
"My sense is we have lost maybe 5% of our gins a year nationwide for about the last 10 years," says Sledge Taylor, a Como, Miss., farmer and ginner who is also first vice president of the National Cotton Ginners Association. "There's been a certain amount of consolidation and closing all along."
"Even in really good seasons, some gins closed or merged," says Tim Price, executive vice president of the Southern Cotton Ginners Association. "That happened when yields were strong, prices were OK and nobody was reducing cotton acreage."
Figures aren't available yet for the number of active gins in 2007. But between 1991 and 2006, the number of operating gins in the U.S. fell 45%, from 1,505 to 835 by USDA's count. In some parts of the country, the decrease was even more dramatic. California lost nearly two-thirds of its gins between 1993 and 2007.
The closing of operating gins in any given part of the Cotton Belt doesn't necessarily mean overall ginning capacity fell that much. In many instances, several smaller gins in an area were replaced by a larger, more efficient facility. But what might be lost in this next round are some of the newer gins that grew out of those consolidations and serve wider areas.
Faster timetable. A continued fall in cotton acreage will shutter some gins that might have rocked along otherwise, say industry observers. This marks the second straight year of double-digit reductions. Growers cut plantings about 30% in 2007, and cotton acres are predicted to drop 13% in 2008 to an estimated 9.4 million acres. The acreage decline will also speed up gin closings that would have happened anyway. Instead of playing out over the next six to eight years, the timeline perhaps will shrink to two or four years. Outcomes will depend as much on local conditions as national trends.
Matt Moon—part of a Truman, Ark., farming operation that operates the Dixie Gin—has tried to take all the numbers into account and make some judgments about where the theoretical bottom might be. Dixie Gin needs just over 20,000 bales a year as a minimum. "We can stay in business at that level for five years, maybe even 10," says Moon. "But who knows after that?"
The gin, surrounded by the flat, fertile landscape of northeast Arkansas, could probably run up to 50,000 bales in a season. It actually hit 42,000 in 2006—5,000 more than its best prior year.
But like many gins in the South, Dixie Gin's farmers' cotton acreage declined in 2007 with the push to corn. The bale count dropped to 36,600 that year. With a normal crop in 2008, Moon hopes for 30,000 bales.
"We've lost 30% of our potential business in just three years," Moon estimates. Still, he says, cotton acreage in his area has held up better than in other portions of the Mid-South. Cotton has been the area's dominant crop for decades, and many farmers can't finance a sudden swing to grain crops. Those producers who could grow grain, though, did shift acreage.
Future trends. What other adjustments can the cotton gin industry expect?
Mergers and acquisitions. A few of these are happening now, but quite likely they were in the works before 2007. Whether overall ginning capacity is lost depends on the situation. With some mergers, equipment from one gin might be relocated to the other gin, or maybe into an addition. In other cases, the older, less efficient of the two gins simply closes.
Mothballing. Some gins are shutting down for 2008 with plans to reopen when enough cotton acreage returns. Farmers will either look for other gins or the hibernating gin will subcontract the work.
Mothballing isn't unheard of. It occurs occasionally in Texas when hail wipes out significant cotton acreage. Bouncing back might be iffy, though, especially if one year in limbo turns into two.
Enhancements. Operating gins are still pushing to produce a better product that makes farmers more money, which maintains their interest in cotton. Some gins may be able to adjust practices that improve fiber characteristics, although that might also slow ginning speeds and increase per-bale costs.
Potential Bright spots. Another unknown that could make or break some gins is the cost of cotton seed. Cotton seed prices have risen dramatically, pulled along by soybean prices. The value of cotton seed has practically doubled in the last year. This extra revenue has kept some gins afloat, industry insiders say.
Rebate checks to farmers have given them an extra incentive to stay partly in cotton. A declining soybean market might take cotton seed with it, reducing that revenue stream in the process. "On the other hand," says Southern Cotton Ginners Association president Tim Price, "reduced soybean prices might mean that more acreage would go into cotton again."
California's Gins Diversify
Many gins have looked for ways to diversify into other services or crops. Some now operate peanut-buying points or their own grain storage facilities. Last year, some Mid-South gins converted unused warehouses into temporary grain storage for corn. And, in certain areas, gins double as ag suppliers.
But diversification is probably most evident in California, which has seen its gin count fall 60%—from 120 to 49—since 1993. Some of the forces that reduced cotton acreage, such as expanded dairy and almond production, have given the remaining gins new markets and opportunities. For example:
Gin trash for dairy bedding. Prices range from $20 to $40 a ton for trash, which had been a major liability in a state that banned burning early on. The dairy industry itself cut into cotton acreage by offering high prices for corn silage in the San Joaquin Valley, where most California cotton is grown.
Almond hulling. The state now boasts 1 million acres of almond trees, and most of the recent expansion has been in cotton counties, taking land permanently out of row crops. Several gins now run their own almond-hulling facilities.
Taking the fibrous husks off almonds isn't too mechanically different from separating cotton lint from seed, says Earl Williams, president of the California Cotton Ginners and Growers Association (CCGGA). "If you can run a cotton gin, you can run an almond huller," says Williams.
Pilot Program. CCGGA has launched a pilot program to consult with almond hullers on state air quality permits and compliance services.
High seed prices. Like ginners elsewhere, Californians have benefited from high cotton seed prices. Higher seed sales, Williams believes, kept a bad situation from getting worse. The state lost three gins between 2007 and 2008, with two more going dormant for the season. Still, that was a lower number than Williams expected when the 2007 crop finished.
"In some cases, gins are showing record returns due to seed prices. If a gin is debt-free, this can be a great boost to the bottom line. It has encouraged some gins to stick around for at least one more season."