Trading up


Plains Cotton Co-op uses computer technology to pursue business-to-business strategy

By Pamela J. Karg
Field Editor

ike many computer users, Plains Cotton Cooperative Association (PCCA) decided this spring it was time to trade up to the next business model.

With non-cooperative partners, PCCA created an Internet-based, business-to-business (B2B) marketing venue for cotton and cotton-related products. The partners include Allenberg Cotton Co., a division of the Louis Dreyfus Corporation, Dunavant Enterprises and Cargill's Hohenberg division. Leaders from each organization believe the B2B venture creates a comprehensive, independent, electronic exchange for both prospective cotton suppliers and cotton customers.

The courage it takes to look into the future and imagine what could be is nothing new to the Lubbock, Texas, farmer-owned organization. That's how PCCA started in 1953 and that's how it greeted the new millennium when it announced the new venture the Seam that would take its producers to the next technological level in the world market.

Since 1975, PCCA members had used TELCOT, a mainframe-based computerized extension to the way producers had traded their cotton for decades. The online, real-time cotton marketing system was a centralized place where buyers and sellers could meet to trade cotton via computers connected to PCCA's servers.

Conceptually, it operated similarly to the New York Stock Exchange.


TELCOT gave producers a number of options to sell their cotton and it gave them access to major buyers. With this tool, farmers could receive the most competitive price available at the time of sale. TELCOT guaranteed each producer payment for the cotton sold and it guaranteed each buyer delivery of the cotton purchased.

PCCA President and CEO Van May says this year's new venture is a logical step for his marketing cooperative, one which prides itself on using new technologies, developing innovative and aggressive marketing strategies, and achieving the best possible prices for their farmers.

"PCCA has a legacy of innovation and industry leadership," says May. "Our 25-year commitment to the electronic marketplace has clearly demonstrated the many efficiencies and advantages of electronic trading. And we think this new venture the Seam is a catalyst for positive changes in our entire industry."

The initiative gained momentum in early summer with the addition of two prominent U.S. textile mills: Avondale Mills of Monroe, Ga.; and Parkdale Mills of Gastonia, N.C. Avondale and Parkdale are the largest U.S. consumers of cotton.

The new B2B marketplace is designed by and for the cotton industry. It operates as an independent company and the four initial investors each own an equal share. Their ownership percentages will decline as additional partners come on board.

Buyers and sellers of products and services get a single, convenient place to connect, conduct and facilitate transactions and better manage their supply chains on the Seam. The B2B marketing system allows any merchant meeting necessary criteria and agreeing to pay the commissions to trade cotton. With just the TELCOT system, PCCA earned just one commission from the time the producer sold the cotton until it was delivered to a textile mill. But cotton typically changes hands an average of five times, and May says the Seam will garner commissions at each trade. As one of the partners, PCCA and its members will share in those commissions.

The new venture also significantly expands the scope of PCCA's TELCOT system, which serves 53 buyers. However, May says there are approximately 200 cotton buyers in the United States and the new system is aimed at capturing a greater share of their business.

"We believe this new marketplace provides more choice, not less, for users, and they can instantly compare prices. This allows both sides of the supply-demand equation to buy or sell more efficiently because it's an open market," May says. "It shifts' some competitive advantages to producers who now have immediate, online access to prices and other information. As we attract more buyers, this means more choices for farmers who want to sell their product."










Over 22 million bales of cotton have been trade through PCCA's existing computerized system. PCCA spins much of that cotton into textiles in its Texas plants. photo courtesy PCCA

Additionally, PCCA members and their co-op gins see little difference in the way they sell cotton and receive payments. "Our members continue to deal directly with PCCA," May says, though the new Internet based company has a more modern look and feel to it. "We have changed TELCOT to a 'Windows' based program, and we're now trading cotton over the Internet. Our members can still trade equities on the TELCOT system, and the service they're accustomed to continues, but TELCOT is really becoming the foundation on which theSeam is being built."

At first glance, it could appear that theSeam is the perfect opportunity for PCCA to expand its membership. But May says that's not the motive behind the B2B venture.

"Growers in other territories outside Oklahoma, Kansas and Texas will not become members of PCCA simply by trading their cotton on the new website," he explains. "Nor will they be eligible to participate in any of PCCA:s dividends."

Rather, the site should improve the cotton industry's efficiencies which, in turn, can improve prices paid to producers. PCCA and the other partners agree that the multi-billion-dollar cotton industry has some inefficiencies that make it ideally suited to benefit from a B2B marketplace. May notes that the cotton industry is fragmented among producers, merchants and manufacturers, all of whom deal with incompatible, labor-intensive logistical systems. In many areas, cotton transactions still involve multiple, redundant faxes and phone communications. An online marketplace allows manufacturers and merchants to more effectively purchase and sell cotton and to expose producers to a far broader range of buyers and services.

"Competition should increase based on the number of merchants across the country, and this increased competition will have a positive impact. When cotton buyers compete, cotton producers benefit," May adds.

Texas and the other portions of the southwest served by PCCA is big, wide-open country. Services can be few and far between, including U.S. Department of Agriculture Service Centers. PCCA has developed a quasi-governmental role for itself, and will continue to do so even with the Seam B2B business.













The creation of theSeam e-trading place help could help lower costs of moving cotton from the field to the textilemill.

Currently in its software system, PCCA differentiates between cotton placed in the Commodity Credit Corporation (CCC) loan program and non-loan cotton, and notifies buyers where the cotton was ginned and stored. In addition, it offers producers a loan advance program. Through it, producers can tender their cotton to PCCA and receive an interim cash advance equal to the CCC loan price. When the market is right, producers then notify PCCA to offer the cotton over TELCOT to obtain the best price available. In essence, the producer has an immediate cash advance available, and the cotton can be marketed at a later date.

Over 22 million bales of cotton have been traded over TELCOT. The network has more than 300 remote sites supporting over 1,000 devices. The computer processes an average of 10 transactions per second and handles 175,000 to 350,000 transactions per day. In peak trading periods, more than 25 transactions per second have been sustained. "When you look at the numbers of what we've accomplished alone with our TELCOT marketing system, it doesn't take too much imagination to envision what an expanded B2B site can do for cotton," May adds.








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