Cotton comes in many varieties. One variable in cotton price is the variety planted. Acala and Upland are standard varieties with prices in the 70 to 80 cents per pound range. Pima is a whiter, more premium variety with a price in the 90 cent to $1.10 range.
There are 500 pounds of lint per bale. So, the average price received by farmers for standard varieties range from about $350 to $400 per bale and the more premium variety cost somewhere between $450 to $550 per bale.
Cotton is planted in April or early May in either 30 inch or 40 inch row spacing. Production costs increase by approximately 1% with a lint yield increase of approximately 7% for 30 inch rather than 40 inch spacing. Cotton is planted on a rotational basis with other row crops, including tomatoes, corn, wheat and barley.
Since most sales contracts are stated in bales, the auditor must make a conversion from pounds to bales during the examination. Use county averages or something similar in your area to estimate crop income. See Chapter 1, Audit Flow.
A cotton crop is usually not sold for an entire farm at one time. There can be a number of sales contracts for one farm, therefore a yield comparison is essential to ensure that all bales are accounted for with sales contracts. Sales price can be set in the contract or it can be locked in at various times. Samples of the variety of pricing options are:
Price Later Contracts
- It is common to lock in a price at a later date based upon New York Commodities Exchange Futures. If this is the case, there usually will be an initial contract or Grower Confirm Contract.
- A fixation Agreement to lock in the price at the agreed upon date.
- An invoice to finalize the sale at the fixed price.
Pricing by Grade Contracts
- Sales prices will also vary by the grade of the cotton. Most contracts cover prices at a variety of grades.
- These are also sometimes used in the cotton industry. Check for details as to what event fixes the option and when the option expires.
Deferred Payment Contracts
- Shipment dates and payment terms always need to be looked at for any inconsistencies in deferred payments which could invalidate the deferred payment contract.
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