Declining Cotton Acreage Impacts On U.S. Cotton Ginning Industry Structure And Costs

The United States cotton industry has seen sustained reductions in cotton acreage since 2006 that coincided with increased production of biofuels that afforded higher returns to crops such as corn, among others, from which biofuels are derived. With lower cotton production following reduced acreage, the average number of bales processed per gin in the U.S. declined from 26,920 bales in 2006 to 17,453 in 2008. As a result of this lower effective demand, higher-capacity gins are constrained to produce at lower volumes below their minimum efficient scale at higher costs. On the other hand, smaller capacity gins now operate closer to their minimum efficient scale which makes them more cost-effective in producing lower volumes. This paper evaluates how the recent declines in cotton acreage have affected the structure and costs faced by cotton gins in the U.S.