Cottonseed is an important product of upland cotton production, where
roughly 700 pounds of seed on average are produced from each 480 pound
bale of cotton (Cotton Inc.).

Cottonseed is an important product of upland cotton production, where
roughly 700 pounds of seed on average are produced from each 480 pound
bale of cotton (Cotton Inc.). Whole cottonseed is a significant
ingredient in livestock rations, putting it in competition with other
feedstuffs, such as corn, soybeans and its crush components, and other
oilseeds. Cotton Incorporated describes one fourth of U.S. whole
cottonseed as being sold directly from gins as livestock feed, and
another quarter is distributed as livestock feed products after being
processed by an oil mill.

A majority of cottonseed marketing takes place from September to
December after the typical harvest period in Texas, and the value of
whole cottonseed is traditionally applied to offset ginning costs.
Conventional risk management practices for similar commodities consist
of longer term storage, forward contracting, and using futures markets
as a means to combat unfavorable price movements. However, special
considerations must be made for storing such products and no futures
market currently exists for cottonseed, limiting users and growers in
their marketing planning and price risk management strategies.

This study examines commodities with established futures markets to
determine an appropriate cross hedging vehicle that is sufficiently
associated with the West Texas whole cottonseed price, which can then
be used to hedge against price movement in a negative direction
depending on the users need to buy or sell physical cottonseed. These
strategies will conceivably allow growers, gins, oil mills, and
livestock feeders to reduce price risk and aid in financial decisions.
Although this study is primarily focused on markets within the state
of Texas, the same methods can be used nationwide with presumably
similar results.

For more information, please contact Dr. John Robinson, jrcr@tamu.edu,
or visit: http://agrilife.org/cottonmarketing.