* Cargill did not breach of cotton contract - arbitrator
* Cotton co-op "disappointed" by ruling
* Arbitration one of 100s since 2011 when prices shot to
By Chris Prentice
NEW YORK, Feb 7 Cargill Inc has won an
arbitration case filed by an Alabama cotton cooperative that
accused the global commodities trader of breach of a contract in
2011, according to a ruling.
In October last year, the Autauga Quality Cotton Association
alleged that Cargill cost its member farmers an estimated $35
million of hedging-related losses in 2011 and filed a complaint
with the Memphis Cotton Exchange.
The exchange determined that Cargill was not responsible for
the loss in value of the farmers' cotton and was not in breach
of the terms of the contract, its board said in a Jan. 28 ruling
posted on Autauga's website.
The co-op was "sadly disappointed and vehemently disagree
with their decision," Jeff Thompson, Autauga's representative of
the southeast/mid-south, said in a statement on the
According to the original complaint, Cargill, one of a
number of large commodities merchants, was responsible for
finding cotton buyers for a small group of farmers represented
by the group as well as helping them hedge exposure to price
volatility in the futures market.
But Cargill prematurely removed hedges without the farmers'
consent, leaving Autauga's cotton unprotected against price
gyrations. The removal of those hedges cost the co-op's members
about $35 million in losses for 164,000 bales of cotton, the
"Notwithstanding the comments on the (Autauga's) website,
the arbitrators found that Cargill did not act arbitrarily or
engage in any conduct for which it could or should be held
accountable. The unanimous award speaks for itself," Mark Klein,
a Cargill spokesman, said on Thursday in an emailed statement.
In September 2011, Autauga farmers received 77 cents a pound
for their cotton, instead of the $1.10 to $1.20 they had been
expecting, thanks to the dropped hedges, the organization
previously said. The average cost of production that year was
about 85 cents a pound, according to Autauga.
Cargill replaced short futures with cash sales on behalf of
the farmers, believing that China's plans to build up its state
cotton reserves would turn Autauga's futures hedges against
them, according to the arbitrators' determination.
In March 2011, China announced plans to build its reserves
of the fiber. Those reserves now stand at roughly half of global
While the trading firm's decision was "not a good one,"
Cargill acted in Autauga's best interest based on information
known at the time, the three arbiters on the exchange's
Autauga could not be reached for further comment.
The arbitration is one of hundreds that have taken place
since 2011 when prices shot to $2.20 per lb, their highest level
since the U.S. Civil War in the 1860s.
The International Cotton Association, a UK-based trade
association that oversees international trade disputes, said
last month it dealt with a record 247 applications for
arbitration in 2012. That was up from a previous all-time high
of 242 a year earlier.