Forwarded Cotton Contracts - From the Ground Up

When farmers pre-sell all or a portion of their crop, the price they receive is whatever is on the futures board at the time they sign their contract. With December of 2011 cotton currently being at an attractive price, you might think that farmers have already sold whatever portion of their 2011 crops they plan to pre-sell. In this week’s From The Ground Up, Ashley Batey tells us there’s some work that has to be done before that can happen.

“When you sell off of December 2011 that means you have to deliver your product by that time. They usually have and ending date on a contract, so you have to meet that delivery date.”

John Malazzo farms in the Brazos River bottom in Burleson County.

“Because of where we are here in central Texas, and our harvest time, it would be very risky for us to sell off of October. There’s probably not enough time for us to harvest, gin, and haul to cotton to the compress, and meet the October deadline, so we sell off of December which is usually a few cents cheaper.”

The day we talked with Malazzo, cotton was $1.47 per pound on the December 2010 futures board and 97 cents a pound on the December 2011 board.

“It’s so early, you know most farmers are not willing to forward price cotton this time of year because we don’t have our plans made, we don’t have our crop rotation decided upon, we don’t have our financing in order. We still have to re-lease a lot of the land that we lease.”

Malazzo does believe that the higher prices will force farmers to commit earlier than usual.

“I think as soon as we get our leases in order and get our budgets in order, I think you’ll see a lot of farmers go ahead and take, start taking some positions, I know I already have, because I have some land that I own, and I know I’m going to plant cotton on that land, so we’re going ahead and setting a floor there.”

To maximize opportunities today a row crop producer has to be as good of a businessman as he is a farmer. I’m Ashley Batey, looking at Brazos Valley agriculture, From The Ground Up.

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