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 MARKET: Buying interest coming in the market at the mid-point of the month has lead to some firming. Nearby prices in all markets received a boost of a couple dollars compared to last month for a variety of reasons. In the Southeast, a couple of buyers moved into the market and as a result nearby offers across the board were four dollars higher than last month, while bids moved up anywhere from two to three dollars. Some of this recent buying interest was in North Alabama for supplies, which will most likely be barged to the dairy markets in the upper Midwest. Summer offers have yet to show any definite signs of firming, as they are showing the same range of price movement as the nearby business.

In the Mid-South, nearby values are firmer than a month ago. The greatest strength as of late is in the Memphis North market; with the summer position quoted six dollars over last month’s offer. The Missouri Bootheel market is much more active this month, after being inactive for the past couple months. Contacts are suggesting that some trading in the region is based on cash up front on seed to be delivered later in the year. Apparently some of the gins are getting to be a little cash strapped, and are anxious for an influx of cash. These types of deals may be done with additional terms and conditions may cause prices to be struck above or below standard “pay-on-delivery” type deals.

In the Southwest, trading ranges are basically unchanged compared to a month ago, but are being touted as firmer. There reason for a firmer feeling in the nearby is because contacts have reported that the Lemesa oil mill is no longer actively selling seed. The summer contract has traded three dollars below last month’s offered price. Merchants in this market have mentioned that demand is lackluster and buyers are keeping to a hand-to-mouth procurement strategy. Outside of dry soil moisture, this market has little bullish news to provide upward price movement. Possibly next month there will be more information about planting progress in the southern part of the state.

In the Far West, the California markets are mixed compared to a month ago, with the nearby a dollar firmer, and the summer position offered a dollar lower. At the start of the month, the nearby firmed because of some rail supply tightness. This lack of rails supplies is expected to be short lived, but still provides the opportunity for prices to pop up a dollar here or there. Consistent steady demand is the feature of this market, which is helping the California market in being the only market trading close to last year’s prices. This market regularly reports sales on summer and clock positions coming from end users. It appears that of all markets, California end users have the longest position. Exports are expected to be much lower this year, as domestic supplies are much greater and a firmer Australian dollar will likely be price prohibitive.

Delivered truck markets to the Northeast and Midwest have seen offers rise from four to seven dollars on all positions. This firmness is an outcome of firmer FOB values, and anticipated firmness in the trucking market. Rail markets are firmer, but to a lesser degree. Rail supplies to Idaho and the Pacific Nothwest are expected to be adequate. Some are suggesting this market may see the fiercest competition between merchandisers with more sellers in the market.

Considering the large supply fundamental, it is difficult to find arguments that will sustain this early month firmness. Nonetheless, several sources mentioned that the take out and movement of already contracted seed has picked up considerably giving a somewhat firmer tone. It is questionable if current price levels will be able to last till the end of March. The Easter holiday at the end of the month may provide some nearby supply tightness, providing buyers are pressed and willing to pay up to get supplies.

COTTONSEED SUPPLY/DEMAND BALANCE SHEET UPDATE: The USDA Oil Crops Outlook only had one change to their cottonseed supply and demand balance sheet. The USDA lowered their crush number by 100,000 tons. This same amount was added to the feed, seed and other category. To support his change, we can look at the latest January crush report, which shows 281,293 tons of cottonseed going to crush.

As this is the mid-point of the crushing year, it is interesting to look at results for the first half of the year. Between August and January, 1.387 million tons of cottonseed has been crushed. This first-half total is only 38,597 tons more than what was crushed in the same period last year. If the crush continues at its current pace, we are looking at a total crush of 2.774 million tons. Typically the lion’s share of the crush happens in the first half of the year, so it may be difficult to even reach the 2.8 million figure, but production capacity is available to even surpass this number. Steady cottonseed oil exports, low cottonseed oil stocks and improved cottonseed oil prices may be able to push crushers to increase their production for the remainder of the year. 

In light of these crushing statistics at the mid-year point, the Sparks balance sheet has lowered the crush amount by 150,000 tons. This amount is added to the feed, seed and other category. The other change is a reduction of imports by 20,000 tons, which reduces the total supply and ending stocks by the same amount. The current outlook for importers is not very favorable. Only if prices increase or the supply situation radically changes will the importers have a greater opportunity to increase their volumes. As we get more information and move into spring and summer, we will likely need to ratchet this import category lower.