Fair to middlin may have been used as a term for grading cotton, but that is not where the term comes from. Its source is probably Britain or the Sandwich islands and was widely used on the east coast. It is also widely used in many regions of the U.S. other than the South.
Did yer Grandeddy tell you that, or are you just that dang old?
A Texan knows that it's actually a weather report for all locations between where you happen to be standing at that time, and the oil fields around Midland and Odessa.
Texas weather rarely changes, but it's a favorite conversation piece. "Fair to middlin" means the weather is so clear, you can see all the way to Midland, but has become understood to mean "everything's OK".
"How's it goin'?"
"Oh, fair to middlin, I reckon"
"How's that boy of yours?"
"Oh, fair to middlin, I reckon. Startin' football this year at the junior high"
"Aint seen you in a coons age. How's that dawg of yours doin?"
"Fair to middlin, I reckon."
How'd ya make out down at the cattle auction?
"Oh, fair to middlin, I reckon"