Cottonseed Market Prices

Cottonseed Prices - October 1998

How would this compare to the 1997-98 crop year. If we estimate total cottonseed crush at 3.7 million tons (225,000 tons for California & Arizona), imported cottonseed at 150,000 tons (130,000 tons into California & 20,000 tons into Longview), utilize the same level for planting seed, here are the numbers. In California/Arizona, available cottonseed per cow would be 1557 lb. and cottonseed/cow/day would be near 5.1 lb. In essence, projected availability will decline by approximately 0.5 lb./cow/day or 10% during the 1998/99 crop year. For the remaining states, total cottonseed availability for feed use would amount to 2,073,000 tons or approximately 576 lb./head. In turn, this would put cottonseed usage at 1.89 lb./cow/day, which equates to a decline of 0.27 lb./cow/day or 14%.

Two factors become apparent from this study. First, it’s apparent this year’s short cotton crop will impact cottonseed oil mills significantly more than the dairy sector. Utilizing current projections, the crush rate will be off nearly 40%, "97-98" vs. "98-99". Secondly, although available 1998 cottonseed supplies into the dairy sector will decline, the net effect on a per head, per cow, per day basis is relatively minor in comparison.

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With all this said, now the market must focus on demand fundamentals. As always, demand fundamentals are elusive, and full of "gut feel". Here’s some of my thoughts:

Feed ingredients from corn, to canola meal, to distillers dried grains, to soybean meal, seem to get cheaper by the week. Outside of whole cottonseed, the only other major commodity trading at a historical premium is possibly hay. And even here, prices vary greatly on a region-by-region basis. As long as competing ingredients continue their downward trend, it may be virtually impossible to get the end user to seek forward coverage on whole cottonseed, regardless of supply.

Sources generally confer that demand is off, the question is how much. The numbers above suggest demand should be off 10-14% across the U.S. if we are to maintain ending stocks at static level.

Strong milk and butterfat prices are essential if cottonseed prices are to remain at current price levels.

If demand is suspect heading into the "as gin" season, it’s questionable whether dairymen will be willing to support a $10-15 premium for Jan-Aug positions.

Anyway you slice-and-dice it, prices should remain finicky.

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WEATHER-WEATHER-WEATHER: Although demand may be off, it’s a good thing it is in the Mid-South and Southeast. The clear skies of August are now being shaken almost weekly by new tropical depressions moving up from the Atlantic Ocean. For example, spot loads from Georgia to Louisiana are generally in tight supply and commanding a $5 premium. Good harvest weather started to materialize late in the week (week of September 25), however, Hurricane Georges could negatively impact weather patterns by the weekend. What was anticipated to be an early harvest, is quickly fading. However, the northern tier of cotton states (the Carolinas to Arkansas) are having better luck, and harvest is progressing closer to earlier projections. In fact one gin reportedly commented in the Missouri Bootheel that he may complete ginning by the end of October.

In west Texas, early harvest is underway with limited quantities of "as gin" seed filtering into the market as we write this column.

In Arizona and California, harvest is still a couple weeks away. However, with another boatload of cottonseed arriving in San Diego early in the week, there appears to be ample supplies till new crop supplies become available.

Our Thoughts on Milk Prices:

Although many analysts are predicting a severe drop in milk prices (and they might be right), I personally doubt the decline will be as severe as many are predicting. And a corresponding drop in fat price diffentials may not materialize to the same degree. In the end, many dairymen will continue to benefit from the use of cottonseed in their rations.

Cottonseed Buyer Profiles

GROUP 1: Base demand group that will formulate cottonseed in at a 4-6 lb. inclusion rate regardless of price.
GROUP 2: Formulates at a 2-3 lb. inclusion rate regardless of price, and would like to feed at the 4-6 lb. level. However, the last 2-4 lb. is price sensitive.
GROUP 3: This is the major swing factor for cottonseed demand. They enter the market when the price is right or other factors prevail (i.e. short hay supplies), and will subsequently exit when other opportunities exist.
GROUP 4: This group does not have access to, or the ability to incorporate whole cottonseed into their rations. However over time, dairymen in this group will migrate up into Groups 1, 2 or 3.

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