The San Joaquin Valley Quality Cotton Growers Association is now offering a unique marketing plan which will provide the SJV growers with a new pooling program for the 2007 crop year.
“The new program, known as SJV Premium Marketing Pools, will allow growers to enjoy all the benefits of traditional marketing pools along with the cash-flow benefits of tax-deferred advances that cooperative marketers can't provide,” according to Greg Palla, association vice-president, operations and grower relations.
Over the years, traditional marketing co-ops have struggled with how to provide important tax planning mechanisms which allow their members to defer taxes into future years. Many of them have utilized the “deferred payment contract” method as a strategy to accomplish this, where the grower simply agrees to allow the co-op to delay the distribution of their own advances until the next tax year. This helps the grower solve his tax problem, but in doing so, creates another one for him in the process. Without the proceeds available to him upon delivery of his crop, he is in a cash-flow crunch until after the beginning of the next year. Sometimes this can be as much as three months for cotton growers.
What the SJV Premium Marketing Pools will utilize is the Loan Servicing Agency (LSA) approach to CCC Loan inclusion. This well-tested process allows the grower to receive cash advances on his crop (at CCC Loan levels) without having to declare their receipt as income until the next year when additional pool proceeds are provided.
“Some growers have had negative experiences with marketing pools managed by cotton merchandising firms,” according to Palla. “Difficulty in finding out exactly how the marketing pool ended up at their final price, and the nature of all the many deductions seems to be the most common complaint.
“To make sure that isn't a problem with the SJV Premium Marketing Pools, our marketing firm, Weil Bros. Cotton, Inc. has agreed to allow independent auditors, engaged by the SJV Quality Cotton Growers Association, to examine the books of their operations and report their findings to the association directly. This way there is no doubt as to whether or not the growers received all the money due them. This is, I believe, a first in the industry.”
Another common objection expressed by many growers is the need for marketing co-ops to deduct retains from the growers' proceeds and keep them for years and years. Some co-ops suggest that this necessary retain deduction represents the grower's “ownership interest” in the company, even though capital gains upon the sale of capital assets rarely get distributed back to growers before the co-op shuts down.
“SJV Premium Marketing Pools won't need to deduct retains from the growers because Weil Bros. has agreed to provide all the capital necessary to adequately collateralize the marketing process,” says Palla. “Growers can use this money for their own farming operations, instead of it being at risk in the co-op.”
SJV Premium Marketing Pools will continue to pay growers premium prices for premium cotton. While other marketing pools pay base grade prices with no premiums for better qualities, SJV Premium Marketing Pool growers enjoy real premiums for longer and stronger cottons and for higher grades as well.
“Our philosophy has always been to reward growers for producing better qualities by passing on the higher prices earned in the marketplace,” says Bruce Groefsema, vice-president of Weil Brothers and marketing manager for the pools.
“Growers respond very positively to this kind of incentive and it shows up in the average quality of their crop. Pools that use premium cotton to ‘pump up’ the levels of their base grade cotton are sacrificing the high quality growers’ premiums to benefit those producing at the lower quality base grade. We know of no other marketing pool in California that is paying the premiums we have been paying over the last several years, whether though a merchant or a co-op.”
Unlike many marketers, SJV Premium Marketing Pools do not require growers to commit “entire entities” or “entire farms” in order to join.
For more information can call (661) 398-4333 or go to www.sjvqualitycotton.com.