Bayer CropScience, the second largest cotton planting seed company in the United States, has agreed to purchase the assets of grower-owned California Planting Cotton Seed Distributors (CPCSD), Shafter, Calif., for $14 million.
The sale merges the newest cottonseed company in the United States with one of the oldest.
Bayer CropScience is one of the world's largest chemical companies, but is a relative newcomer with its FiberMax cotton varieties. However, the high quality cottons originally from Australia have gained popularity rapidly in many parts of the United States for their fiber quality.
It has been so good that FiberMax and Acala cottons, the cottons that have been the foundation of CPCSD since its conception, compete for the same mill customer in many parts of the world.
Founded in 1936, CPCSD dominated the San Joaquin Valley Acala market for decades, which at one time totaled 1.5 million acres.
However, since the old one-variety was changed opening up the valley to commercial seed companies, CPCSD's share of the market has eroded away along with the valley's cotton acreage. Today SJV cotton acreage is a third of what it once was, replaced largely by high value trees and vines. Urbanization also has taken some of the former cotton ground.
This year CPCSD sold less than 25,000 bags of seed repesenting less than 14 percent of the 529,000-acre cotton market.
CPCSD's chief competitors Phytogen/DowAgro Sciences and Delta and Pine Land Co. simply had deeper pockets. CPCSD, which has never sold cotton in the United States outside of California, could not compete, especially with a much smaller pie to divvy up.
CPCSD, which has had grown and delinted Bayer FiberMax seed since 2000, produced FiberMax planting seed for 20 percent of the U.S. Cotton Belt last season in the San Joaquin Valley.
The Bayer buyout of CPCSD is not surprising because of that relationship.
Mike Gilbert, global cotton seed manager of Bayer CropScience, said: “Acquiring the assets of CPCSD will be an excellent strategic fit for our cotton strategy.
“We will now be able to offer to the cotton producer a more comprehensive cotton product portfolio including varieties with high yields and high quality fiber, important agronomic traits and complementary crop protection products. We are proud that we can build on the strong historic roots of CPCSD with their invaluable experience in cotton research and development.”
Bill Van Skike, president of CPCSD, adds: “We are convinced that under Bayer CropScience our research and business activities can continue toward a successful future in a profitable and growing cotton business. Our activities will be an important prerequisite for the development of new cotton varieties with outstanding yield and fiber.”
As part of the sale, Bayer has agreed to create an advisory committee of SJV growers. It is expected to be the current CPCSD board of directors.
Van Skike said the 20 months of negotiations also resulted in a commitment from Bayer to keep the CPCSD breeding program in place.
Van Skike expects most of the CPCSD staff to remain after the sale is completed before the end of the year. However, Van Skike will be leaving. He has been CPCSD president for eight years and with the seed distributors for 13 years. He has been in the cotton business in the Valley 22 years. He has not finalized his plans for the future.
“FiberMax varieties have the best reputation for quality in the U.S. Cotton Belt outside of SJV Acala, but Bayer wants to raise the bar even higher and they are willing to invest the time and money with the expertise and breeding program of CPCSD to raise that bar even higher,” said Van Skike.
Planting seed for the valley will continue to be sold under the CPCSD banner.
Van Skike said the sale will provide financial muscle for CPCSD to continue to compete with the other major seed companies in the San Joaquin. Seed will still be sold under CPCSD's banner, but the seed company will no longer be grower-owned thus ending a 70-year-old chapter in history of California cotton.
“Bayer CropScience is one of the largest chemical companies in the world. It has the technology to go forward in the cotton business. Unlike other companies, Bayer is in the seed business only with cotton,” Van Skike said.
SJV cotton has for decades been known for its Acala quality and reputation, but the future of the valley is now Pima cotton, which for the first time surpassed upland in acreage. Deltapine and Phytogen have developed outstanding Pima cottons while CPCSD just this year won approved variety status from the San Joaquin Valley Cotton Board for its first Pima.
For the first time, Pima acreage has exceeded upland in the valley. However, Van Skike said it has not been so much Pima's acreage growth as it has been the sharp decline of Acala acreage in the past decade,
“There is no Acala leverage left in the upland market,” said Van Skike. Other areas of the U.S. now produce high quality upland. FiberMax has been a big part of that. FiberMax is so close to Acala in quality that growers in South Texas invited the Calcot, a world leader in marketing SJV Acala, to market FiberMax cotton for Texas growers.
“We do produce better quality cotton in the San Joaquin Valley, but it is no longer enough better to justify any significant price difference,” he said. “What was once a Grand Canyon between the valley and the rest of the Belt is now a small stream.”
Many predict the valley's acreage will settle out at about 500,000 per season.
“I think the switch from Acala to Pima was a no brainier. I think what surprised most of us was the rate of decline of overall acreage,” he said.
“Pima could be the cotton industry's almonds. I think there is room for growth for Pima with new high yielding varieties developed for Madera, Merced and Tulare counties like the ones now grown in the Tulare Lake Bottom and the west side of Fresno County,” said Van Skike.
This growth will come from the growing world markets for Pima through the efforts of Supima, the voluntary grower-funded promotion arm of Pima cotton. Continued support of Supima will be important to the future of the SJV cotton industry, added Van Skike.
The buyout of grower-owned CPCSD will take longer than the sale of two privately held companies. Van Skike said it would require a vote of the 1,553 CPCSD members.