Dunavant Enterprises, Inc.
Dunavant Enterprises, Inc.
Incorporated: 1929 as T.J. White & Co.
Sales: $1.2 billion (2002 est.)
NAIC: 422500 Farm Product Raw Material Wholesalers
Privately owned Dunavant Enterprises, Inc. is one of the world’s largest cotton merchandisers, the middleman for more than four million bales of domestic and foreign cotton each year. The Memphis, Tennessee, firm owns a commodities trading company, cotton ginning operations, warehouses, and a truck brokerage company dedicated to the transportation of cotton. Dunavant is also involved in real estate and other outside ventures, and Chairman and CEO William “Billy” Buchanan Dunavant, Jr., has been active in bringing major league sports franchises to the Memphis area. Dunavant operations are spread across the world, from Greenwood, Mississippi, to Tashkent, Uzbekistan. Dunavant Enterprises is among the Forbes 400 largest private companies in the United States as well as the largest private company in the Memphis area according to the Memphis Business Journal.
Dunavant Links to Cotton Dating from 1800s
Billy Dunavant’s connections to the cotton business can be traced back to both sides of his family. His maternal grandfather, Woodson Thomas Knight, was a Mississippi planter, and his paternal grandfather, William P. Dunavant, partnered with legendary Confederate calvary officer William Bedford Forrest to establish a railroad line that was largely devoted to the hauling of Mississippi cotton. Dunavant’s father turned to the merchandising side of the industry at the age of 20, and soon joined forces with an older businessman named T.J. White, a Tennessee native whose family also had a long-term involvement in cotton. T.J. White & Co. was established in 1929 in downtown Memphis, where hundreds of small family cotton firms were located in order to do business in the Memphis Cotton Exchange. Like its competitors, T.J. White struggled through the Depression of the 1930s, but with the war came prosperity, as the company grew to the point where it was handling in excess of 100,000 bales of cotton each year. Billy Dunavant joined the firm as a junior partner in 1952 after returning home to Memphis following two years at Vanderbilt University. He now attended Memphis State University part-time while he learned the mercurial world of the cotton industry, where business was done on the basis of a handshake and firms could be ruined after a single misjudgment. In 1956 Dunavant became a full partner of the firm. After White retired in August 1960, the company changed its name to W.B. Dunavant & Company. Only a few months later, however, in January 1961, William Dunavant, Sr., died, leaving his 29-year-old son Billy in charge.
Billy Dunavant took over during a difficult time. The business was heavily in debt to the First National Bank of Memphis, but Dunavant was able to meet with bank officials and convince them to maintain their backing despite the youth of its new head. Moreover, the U.S. cotton industry now faced steep foreign competition as well as encroachment from synthetic fibers that were becoming increasingly more popular. Government subsidies helped to maintain prices above the market rate, but it left merchandisers including Dunavant with very slim margins. In order to boost profits he made a concerted effort to increase his volume, and by the end of 1961 the firm was handling 150,000 bales a year and beginning a long string of profitable years under his leadership. Not only did Dunavant possess an innate feel for the market, he proved to be a true innovator and visionary. He pioneered the concept of “forward contracting” in cotton, whereby an entire crop was bought at a set price before it was planted. His ability to hedge with futures allowed Dunavant to increase his volume to one million bales of cotton by the early 1970s. He was also the first merchant to tap into the People’s Republic of China, making his first sale to the mainland in November 1972. Later Dunavant moved aggressively to make sales to the Soviet Union. It was also during the 1970s that Dunavant moved his offices from downtown Memphis to more modern accommodations in East Memphis, due to his recognition that because of the rise of computers it would no longer be advantageous to be located near the Memphis Cotton Exchange and its outmoded method of keeping track of quotations on chalkboards.
Facing Ruin in 1976
While other father-and-son cotton merchandising firms fell by the wayside during this new era, Dunavant thrived. By his own reckoning, Billy Dunavant never made a single bad decision on the trend in the market until 1976, when one poor decision, and a serious drought in the Mississippi Delta, nearly ruined the firm. According to a 1995 Barron’s article by Jonathan Laing, the drought “cut yields all through the Delta. As a consequence, Dunavant found himself in the untenable position of having hedged his cash purchases with sales in the future market that totaled twice as much cotton as his purchased acres ended up yielding. ‘I ended up hedging nothing but air on much of the crop,’ he recalls ruefully.”
“To make matters worse,” wrote Laing, “as cotton prices rose on news of the drought, he was having to post more and more margin against the short position on cotton he had taken in the futures market. Then his banker, First Tennessee, got nervous and refused to extend him more credit to satisfy his margin requirements. Only an 1 lth-hour extension of credit by Bank of America and Security Pacific saved the day. Though Dunavant’s company managed to eke out a small profit that year, his Delta cotton dealings cost him more than $30 million.” Dunavant now assumed a more conservative approach to growth and, according to Barron’s, “The near-disaster taught him valuable lessons. Make sure your bankers are reliable. And don’t enter into forward purchases of acres unless they are irrigated and, therefore, less vulnerable to the vicissitudes of weather.” In other ventures outside of cotton merchandising Dunavant also experienced a number of setbacks: real estate, coal mines, and managing cotton farms all proved to be notable failures. The situation in 1976 aside, Dunavant was a highly successful cotton trader and became such a leading figure in the industry that his words and actions were capable of impacting the market. Even with the entry of major, cash-rich grain traders such as Cargill, Continental Grain, Bunge, and Louis Dreyfus, Dunavant was able to thrive in the cotton business because of his personal abilities. As he explained in a 1985 Forbes profile that proclaimed him King Cotton’s Crown Prince, “I think the secret to being a successful cotton merchant is a God-given talent of timing. Some people can play baseball and some people can be president of General Motors. I don’t think I can do either of those, but I have the talent, a sense of feel, for the commodity market.”
As Dunavant Enterprises, as the company was now known, entered the 1980s, a third generation entered the family business. After graduating from the University of Virginia in 1982, William B. Dunavant, III, joined the firm and began assuming a number of managerial positions as his father groomed him for greater responsibilities. By the middle of the decade Dunavant Enterprises was the world’s largest independent cotton merchant, worth well in excess of $100 million and handling over $1 billion worth of cotton each year. To continue its pattern of growth, Dunavant took a number of significant steps during this period. In 1985 the firm purchased Geo. H. McFadden & Bro., one of the country’s oldest cotton merchandisers. Dunavant also made a major commitment to Australia in a bid to ensure a reliable year-round supply of cotton. To support this business Dunavant built the largest cotton gin in the world, capable of processing close to 15 percent of Australia’s annual cotton crop. In 1987 Dunavant also acquired the largest cotton ginning facility in the United States. By the end of the decade Dunavant Enterprises was so successful that it made the Forbes 400 list of largest private companies.
In the fall of 1990 Dunavant completed the largest individual sale of cotton in history, one million bales to China. In 1991 the company followed with an even better year, selling four million bales worth approximately $1.5 billion. It was also during this period that Dunavant became heavily involved in a golf enterprise utilizing land near Jacksonville, Rorida, that had mostly been acquired in the early 1970s when it was used for potato farming. In late 1991 Dunavant, in conjunction with local developer Jim Davidson, unveiled a $1.37 billion plan for a professional-caliber golf course, resort, 7,200-unit residential component, and close to six million square feet devoted to office, industrial, and retail use. A major aspect of the project was the participation of the PGA, professional golf’s ruling body, which Dunavant believed would greatly increase the value of the venture. In exchange for the necessary land, the PGA agreed to establish a PGA Tour Hall of Fame complex in the development, including a resort hotel, two 18-hole golf courses, and a gold academy. The Hall of Fame was expected to open by early 1994, but by that time the project was only just beginning to emerge from the development stage, the cost growing to $1.5 billion. In June 1994 Billy Dunavant and officials from the PGA and the state of Florida conducted an unusual groundbreaking ceremony, driving golf balls that set off explosions of confetti when they landed. The project had evolved into the World Golf Village, which now included a Hall of Fame for virtually every ruling body in golf, including the United States Golf Association, the Royal & Ancient of St. Andrews, and the Masters’ coordinator, Augusta National. In addition, the World Golf Village would boast a four-star resort hotel and convention center, three golf courses, a golf library and research center, a golf academy, a clubhouse, Mayo Clinic sports facility, and the new headquarters for PGA Tour productions. The golf village finally opened in May 1998, with attendance disappointing in its first year. Dunavant’s residential project fared better, selling $50 million residential units in 1998, but in the summer of that year Dunavant opted to sell his interest to Pittsburgh-based Hillman Co.
Dunavant responds: to today’s worldwide weather and crop conditions; to this morning’s pressure on worldwide supply and demand; to this afternoon’s availability of all grades and classes; to worldwide market positions; and to today’s need for a firm price and prompt shipment.
Cotton Tops $1 Per Pound in 1995
Cotton enjoyed a major growth cycle through the first half of the 1990s. In early 1995, spurred on by public comments by Billy Dunavant, the price of cotton exceeded the $1 a pound level for the first time since the Civil War, a long-cherished dream of some speculators, who for 25 years had unsuccessfully attempted to prod the price beyond that threshold and in some cases were crushed by their miscalculations. The conditions appeared ill-suited for a spike in cotton prices, due in large part to a record U.S. harvest of cotton in the fall of 1994, which at first appeared capable of supplying the need for cotton both at home and abroad. Dunavant, however, saw beyond the obvious, taking note that export demand continued to rise despite the ever increasing price of cotton. He surmised that the U.S. crop had taken on even greater significance because of three years of poor cotton crops in Pakistan, India, and China. Concluding that conditions were now ripe to push the price of cotton beyond $ 1 a pound, he acted accordingly. In January 1995 Billy Dunavant publicly expressed his view that high demand would soon drive cotton prices to 95 cents or $1, and in response futures prices began to soar. Over the course of the next several months he was able to take advantage of volatile conditions, in part controlling the market by his statements, but mostly by the adept use of a put position on the cotton futures market that provided protection when the price of cotton dipped before it once again rocketed upward, topping out above $1.17 per pound. As a result more U.S. acreage was devoted to cotton, so that by the harvest of 1996 a seven-year growth cycle in the commodity came to a close.
In September 1995 William B. Dunavant III, now 36 years old, ascended to the presidency of the firm. By now another family member, John D. Dunavant, was also occupying a key position, serving as senior vice-president of domestic sales as well as a member of the executive board. A short time later in 1995 Dunavant Enterprises was caught up in a federal probe that dragged on for several years. IRS agents from the criminal division along with members of the Agriculture Department’s Inspector General Office raided the company’s headquarters, serving and executing search warrants for records. Other cotton firms were also targeted. At issue was the misuse of a USDA program that had been implemented to stimulate the sale of U.S.-grown Upland cotton. The government would contend that midlevel Dunavant employees helped others in a scheme to submit false claims to the government subsidy program. In 1997 three small cotton firms pled guilty to a number of charges, including mail fraud, money laundering, and conspiracy, but it was not until a November 2000 settlement that the matter came to an end for Dunavant. The company admitted no guilt but agreed to pay $4.5 million.
With the close of the 1990s Dunavant looked to bring the Internet to the cotton industry, joining forces with several of its chief competitors to form a neutral Internet business-to-business marketplace for cotton as well as cotton-related products and services. The independent company, named The Seam, set up shop in Memphis. Other Internet companies were also attempting to introduce E-commerce to cotton, but with the onset of an economic downturn, the industry was more concerned with poor market conditions, which in turn had an adverse impact on the fortunes of Dunavant Enterprises. In 2000 the company took steps to grow its real estate division and boost development primarily in the mid-South region. Nevertheless, cotton remained Dunavant’s core business, and as a result of poor market conditions, the firm’s ranking on the Forbes 500 list of largest private companies revealed the downturn. In 1999 Dunavant ranked 191st, in 2000 it was 231st, and by November 2001 the company was 273rd on the list. At the onset of 2002 Billy Dunavant offer a gloomy assessment of cotton, which had glutted the market. With more than half of the world’s need for cotton stored in warehouses, he predicted that the price of cotton would hover in the range of 33 to 40 cents per pound for the next two years. He told the press, “In my 50 years in the business, I can’t think of a time when the cotton industry has faced this many challenges.” Given his experience and track record, however, it was likely that he and his family firm would find a way to profit even during these trying times.
Calcot Ltd.; Cargill, Incorporated; Plains Cotton Cooperative Association.
- TJ. White & Co. is formed.
- William Dunavant, Jr., joins father at TJ. White.
- William Dunavant, Jr., becomes partner in firm.
- After White’s retirement, company changes name to W.B. Dunavant and Company.
- William Dunavant, Jr., takes over firm upon father’s death.
- Company completes first sale to mainland China.
- Company completes largest individual sale, also to China.
Barton, Christopher, “Memphis, Tenn.-Based Cotton Firm to Pay $4.5 Million in Settlement,” Commercial Appeal, November 18, 2000.
Borowsky, Mark, “William Dunavant: King of Cotton,” Futures, May 1, 1992, p. 28.
Hansen, Bruce, “A Day in the Life: Punching the Clock with Cotton King Billy Dunavant,” Memphis Business Journal, June 20, 1994, p. 78.
Jones, Arthur, “King Cotton’s Crown Prince,” Forbes, May 20, 1985, p. 183.
Laing, Jonathan R., “High Cotton,” Barron’s, May 8, 1995, p. 25.