CURRENT CROP YEAR: Cottonseed prices for the current crop year have remained steady to slightly lower across most regions during the past month (mid-February through mid-March). For the most part, trading has been quiet and lackluster. The main exception being the Far West, where prices have declined $7-$10. The decline in the Far West has primarily been due to the widespread realization of the heavy import program destined for Stockton, California this spring and summer. The first boatload of Australian seed should arrive in Stockton in early April and there will likely be successive arrivals every 3-4 weeks until late summer/early fall.
While trading has been relatively featureless in other parts of the country, there have been a couple of noteworthy items. It is evident that quite a bit of seed that would normally move from N. Carolina into the Northeast dairy shed is being displaced by rail and barge shipments out of Alabama, Georgia, and the Mid-South. It is also apparent that seed in West Texas is in relatively strong hands, as bids below $130 have attracted virtually no selling during the past 4-5 weeks. A major seedholder has offers at $130 and that is basically the market in West Texas for now.
NEW CROP SITUATION: Given current expectations for increased cotton acreage in the U.S. for 2000/01, there is reason to believe that imports of cottonseed should slow down a bit during the next crop year. However, Australian product is already being offered for the spring of 2001 and at least two boatloads are thought to have been booked for the U.S. to help cover Oct00/Sep01 sales already made to California dairymen. New crop prices in California have fallen about $14/ton during the past 4-5 weeks and the decline has attracted quite a bit of new crop booking by dairymen.
New crop prices for the fall “as ginned” season have also declined in other regions over the past month, but to a lesser extent than in the Far West. Mid-South Oct-Dec “as ginned” product has declined $3-$4, while product for the same time slot has declined $7-$10 in the Southeast. Only in the Southwest have new crop harvest time prices held steady—mainly due to concerns about dry weather conditions in West Texas going into planting time.
Speaking of planting time, it is nearing completion in the Rio Grande Valley of Texas. This 4-county area was very dry during most of the early planting season, but received a boost in mid-March with general 2- inch plus rainfall totals. Some replanting of poor stands may still occur and more rain will be needed. However, this should be enough to get the Valley’s crop off to a decent start.
COTTONSEED ASSISTANCE PROGRAM: Agriculture Secretary Glickman announced at the beginning of March that USDA would make payments totaling $74 mil to cotton gins to help offset low 1999 cottonseed prices. The payments are likely to be made between mid-April and the end of May. The current expectation is that the payments will work out to around $11.40 per ton. As it stands now, there is no set plan to repeat this program in the year ahead.
COTTONSEED FUTURES UPDATE: The proposal being prepared by the Minneapolis Grain Exchange (MGE) to initiate futures and options trading for whole fuzzy cottonseed is moving forward, but still has not gone to the Commodity Futures Trading Commission (CFTC) for final approval as of mid-March. It is anticipated that the MGE will complete its review very soon. It is difficult to know how long the CFTC review might take, but odds are that it will be at least 2-3 months and perhaps longer. During this time several training seminars are likely to take place across the country to prepare the industry for the initiation of futures trading. Keep an eye out for announcements and the location nearest you.
WHAT’S AHEAD?: Planted acreage ideas keep rising, with Sparks Companies latest estimate at 15.6 mil acres for all cotton. USDA will release the Prospective Plantings Report on March 31 . It seems a given that acreage is going to be large, so the focus will very quickly turn to weather. West Texas weather will be of particular concern, since this is the major cotton producing area where drought seems most serious (as of mid-March). While way too early to have much of an impact on a crop that hasn’t been planted, the concern does appear to be giving sellers second thoughts about getting too aggressive on new crop sales. However, the bottom line is that with anything near “average” yields, cottonseed production is going to rise significantly in the year ahead.
On the demand side, crushing economics continue to be very marginal. The one remaining crushing operation in California will likely switch from Pima cottonseed to another oilseed within the next month or so. Across the Mid-South and Southeast, several oil mills remain on a crushing schedule of 10 days on/4 days off. This is partly to stretch seed supplies purchased at harvest and partly to avoid creating a glut of oil, meal, and hulls. As seed supplies already acquired begin to run low during the second quarter, it is expected that some crushing operations will either shut down for the remainder of the season or switch to a slower crushing pace. In Texas, the oil mill at Levelland did recently shut down for the season. Thus, the outlook is for oil mill crushing activity to gradually slow as we move into the summer.
Dairy demand has not been robust, with the mild winter and the onset of low milk prices at the turn of the year. However, dairy cow numbers have continued to climb and milk output is soaring. For the near term, this probably helps boost feed demand over what might have otherwise been realized. However, overdoing milk production in the near term could mean a more devastating blow on the downside between now and the end of the year. For cottonseed feed demand, much depends on prices for competing ingredients during the “weather market” season dead ahead.
The normal seasonal pattern would suggest that cottonseed prices should rise going into the spring and summer months. However, it will likely take a weather scare for prices to follow the normal seasonal pattern this year. Without weather concerns for new crop, the outlook is for relatively steady markets into the spring. By mid-summer, it isn’t hard to envision some downward price pressure as relatively large carryout stocks and prospects for hefty new crop supplies combine to create a bearish scenario. |
