“It's hard out here for a ginner.” Maybe it was the location or the expressed longing of some of the ginners to escape their lot, but the paraphrase of the Oscar-winning song from the recent movie came to mind when Robert W. Greene spoke to the Southern Cotton Ginners annual meeting.
The meeting took place at Memphis's Peabody Hotel, a few blocks from some of the more memorable scenes in “Hustle and Flow.” And Greene, president of Servico Gin in Courtland, Ala., did confess to being troubled by the current ginning environment.
“Today's challenges seem to be more numerous and more complex than at almost any time in my 31 years of managing cotton gins,” he said.
But the former president of the National Cotton Ginners Association and chairman of the National Cotton Council also offered some thoughts on how ginners could improve their situation without resorting to writing rap songs.
Greene, whose Servico Gin is widely recognized as one of the most efficient and innovative gins in the country, said the challenge of rapidly rising costs is one of the first ginners must address. He broke those into five cost categories:
Capital expenditures. “I won't spend much time on this other than to say I am in the mode of not buying anything unless I can conservatively project a 2.5-year payback,” he said. “There was a time when a five-year or 20 percent return worked, but not now, at least not for me.
“This expected return limits capital expenditures significantly, but, in light of legislative unknowns, I think this is a prudent expectation.”
Insurance costs, he said, “have gotten out of hand. Our gin's book value is a fraction of its replacement value, yet we have traditionally insured at replacement value with relatively low deductibles. Next week I expect to see quotes for higher deductible levels and insured values of property and equipment significantly lower than replacement.”
Greene said he is also considering health savings accounts to reduce the cost of his company's employer-provided health insurance. “My goal is to take at least 25 percent off my insurance costs as soon as possible.”
“Labor costs in our operations are a real dilemma in that I must find a balance between the monetary cost of a dedicated, well-trained labor force with many years of employment experience and the customer service and operational costs of a cheaper, less well-trained and probably less-dedicated group of employees.
No labor cuts
Servico Inc. operates in a highly competitive labor market. “I believe our employee team likes where they work, and I like them to be where they are, so there are no plans for cost cuts in our permanent labor force,” he said. “We have, on the other hand, implemented technologies that have greatly reduced gin season labor. Two examples: We operate our press with only two persons, and our mote press and warehouse is operated during most of the gin season with only one man per shift.”
Servico's electric power is supplied by the smallest power distributor in the TVA network, which charges on consumption and demand. In 2000, the gin installed phase liners on each motor in the gin, based on the recommendation of a power specialist.
“By managing our power factor we experienced an immediate reduction of 25 percent in our peak demand,” said Greene. “We realized a 2.2-year return on investment. More recently, we have increased our hourly throughput by installing new technology that required more horsepower, but the return on capital still met the 2.5-year test.”
Fuel. “We had always purchased our module truck diesel fuel at a local truck stop, but, because of Hurricane Katrina and the resultant diesel shortages and $1-plus cost run-up, I temporarily converted 20,000 gallons of liquid nitrogen storage to bulk diesel storage, assuring availability and saving about 30 cents per gallon or $225 per day during the gin season.”
In 2000, Servico paid $9.20 per decatherm for natural gas. Four years of increasing costs and Katrina brought the average cost for the 2005 gin season to $18.70 per decatherm, a 103 percent increase.
“Price volatility is even more alarming our natural gas costs to our Easiflo plant increased 52 percent in one month as a result of Katrina and 73 percent from August to December,” he said. “To counter some of this increase, we have discontinued use of our Samuel Jackson conditioning hoppers, installed a new dryer system and fully insulated all hot air piping and dryers.”
Greene said it's difficult to track how any of those steps have reduced natural gas consumption, but he offered some thoughts. “We use the Intelligen system, which gives us moisture readings on each module ginned and the moisture of cotton in the lint flue. It is vital in today's environment to know everything possible about your ginning process, and the Intelligen system provides me with comprehensive process data.”
Factoring in the average module moisture and lint flu moisture, he has attempted to calculate the relative amount of natural gas used per bale. “We believe we achieved a 22 percent decrease in gas used per bale, which we attribute in large part to more efficient dryers used during the 2005 season.”
Servico insulated its drying system several years ago, but did not have it on newly installed piping and dryers during the first month of the 2005 gin season. Fuel consumption fell by 39 percent after the insulation was fully installed. “Obviously, if you haven't insulated your drying system, do it before next fall.”
When it comes to two other issues that have been plaguing ginners — less seed per bale in some of the new varieties and low cottonseed prices — Greene said he doesn't have all the answers, but was willing to suggest some.
First, he urged the ginners to “learn all they can” by reading publications such as the Cottonseed Digest and National Cotton Council reports, talking to oil mills and cottonseed merchants and studying supply and demand numbers, imports and exports, crush values, dairy profitability and milk prices and forecasts.
“Determine your gin location's best markets,” he said. “Is your cottonseed going to be best sold to an oil mill or do you have some location advantage to the Midwest, Ohio or wherever?”
Ginners should also determine if premiums are paid from time to time for a particular freight method. “Many gins will load closed top vans during the gin season, but not January through August, even though a $10 per-ton premium may be paid,” he said.
“If your best market is to load trucks for barge shipment, are you capable of loading the 15 trucks per day necessary to load a barge in three days? Are you near a rail line that would give you a premium?”
Ginners who don't have enough storage and know they will have to ship cottonseed in the fall, should consider pricing the as-ginned seed before the traditional gin season slump, which often brings the lowest price of the year. Conversely, they should consider adding storage so they can participate in deferred market increases while selling less seed at the harvest season discount.
Ginners should make several sales over a period of time to improve their average. “Avoid pricing decisions by committee,” he said. “You or someone in your organization should be the marketing strategist and decision-maker. It may be good to discuss strategy and pricing decisions with a board if you have one, but someone should pull the trigger.”
He said the ongoing debate over whether ginners should raise their charges to growers to cover all of their operating expenses has to stop at some point.
“I don't think this can go on forever especially in light of the increased costs,” he said. “The simple answer is to go up on what you charge and bill the grower. But it's not that simple or, at least, not in my case. I don't believe I can just go up on gin charges without losing the volume I need to utilize our plant, equipment and human resources.”
Greene said Servico has diversified its operations to include cotton warehousing, cottonseed storage, processing and marketing; crop input and crop insurance sales and accounting services. “We will continue to diversify as we have opportunities, but, in the meantime, we must continue to look for ways to cut costs and increase the value of our products and services.”
He also urged ginners to do more to support the National Cotton Council, including responding quickly to the “Action Alerts” sent out when the NCC believes industry members should contact their senator or congressman about specific issues.