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.

Cottonseed Markets: The strength experienced in most markets over the last several weeks are only now in mid-May beginning to show some cooling. The recent firmness in nearby markets is a result of short positions filling in requirements. Looking forward, we expect pricing to back off some, as supplies to most markets remain adequate. However, due to hand to mouth buying, nearby pricing will continue to be traded at a premium.      

In the Southeast, North Carolina is trading three dollars lower than last month and is keeping a large spread to other markets. This price spread is allowing them to be the main source for supplying seed to the Northeast dairy shed. Seed in adjacent markets are trending lower, but are still priced above North Carolina. Moving into the summer months, pricing in South Carolina, Georgia, and Alabama may need to be priced at a discount to North Carolina. Thanks to higher gas prices and limited availability of trucks, freight prices are moving higher which may pressure FOB prices lower.      

In the Mid-South, the Memphis market is providing price direction for adjacent markets and the Southeast. The strength in recent weeks is a result of the closing of barge traffic on the Upper Mississippi. This is causing significant short positions to the delivered markets in the Midwest. Due to this logistics debacle, the Memphis marketed traded as much as five dollars over last month’s price. With the river coming down to regular levels, we expect to see demand diminish in coming weeks. However, the net short to the market will likely keep nearby prices over the forward positions.      

The Southwest has seen some strength at the end of April, in lieu of a major seedholder backing out of the market. At the same time, demand has considerably backed off as farmers are focused on planting which may lead to lower pricing. In addition, warmer weather will likely adversely affect feed demand in coming months. On the bullish side, this market has moved inventories to Utah and Nebraska, lowering their abundant supplies.      

The California market has firmed in anticipation for the first vessel of imported Australian seed, which hit the dock the second week in May. Resellers with short positions have supported the California and Pacific Northwest price. Delivered rail prices in Idaho traded ten dollars over last month’s offered price. Continual dry weather and water shortages are likely to increase cottonseed demand, as many farmers are not irrigating hay fields that may lead to a shortage of quality forage. However, expected record imports of cottonseed should help satisfy demand. Price direction remains questionable; however, there appears to be more downside than upside potential.     

PLANTING PROGRESS: At the mid-point of May, cotton planting is 57 percent complete compared with the normal of 50 percent. Cotton planting progress is a record in Tennessee (87 percent complete) and Louisiana (97 percent complete). Arkansas (at 87 percent complete) is the fourth fastest on record behind 1969, 1977 and 1981. South Carolina ties 1989 as the slowest planting progress for this date at 38 percent.      

Cottonseed Supply and Demand balance sheet update: This week the USDA released their oilseeds report with their cottonseed balance sheet including numbers for “new crop” for the first time. The USDA modified their projections for old crop. Most noticeably, the crush volume on old crop was lowered by 50,000 tons, which raised the carryout to next season by the same amount. The USDA lowered old crop production by 3,000 tons as well as their feed, seed and other category, we lowered our Sparks numbers by the same figure.      

This May report is the début for the new crop (2001/02) balance sheet. At this early point in the process there are major differences between the USDA and our Sparks figures. Starting with the supply side, we are expecting a larger carry into next year and a somewhat higher production than what USDA is forecasting. Sparks originally forecast much higher acreage being committed to cotton, if weather permits we may even see greater production. Regarding imports, we expect the imported seed from Australia to continue, as the Far West has the most robust growth in high inclusion dairy users. This import number is quite conservative this early in the year and will likely increase, as more information on US and Australian supplies become known.

On the demand side, we do not foresee demand expanding as quickly as new crop supplies. With the glut of vegetable oils on the world market, expectations are for depressed pricing on cottonseed oil, therefore less seed committed to crush. Providing prices allow, there may be increased export potential to Mexico, as they have greatly reduced domestic cotton production, and their fledgling dairy sector lacks quality forages. The USDA is showing a considerably higher number for the feed, seed and other category for new crop over this year. To obtain this higher level of usage, prices will need to be a real bargain in order to compete against the expected low priced proteins next year. One supportive point to disappearance is the fact that the herd expansion in the dairy sector is happening in the states that are top destinations for cottonseed. At this point, we are showing a historically large carryover from new crop to the 2002/03 season.      

Every effort has been made to assure the accuracy of the information and market data which is provided in this publication as a compilation for the use of its readers. Information has been obtained by Sparks Companies, Inc. (SCI) from sources believed to be reliable. However, because of the possibility of human or mechanical error, SCI does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Published by Sparks Companies, Inc., 2030 Silver Lake Rd., Suite 100, New Brighton, MN 55112.