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 PRODUCTION: USDA’s January production report provided lower than expected season ending stocks estimates for corn, soybean, and wheat. Fundamentally this provides bullish news to slightly tightened these markets. Both corn and soybean production estimates were lowered from estimates in previous reports. These statistics may provide underlying support to lathargic feed markets. Realistically however, feed traders feel that the mild winter thus far has substantially cutback feed demand which will not return. 

This year’s all cotton crop is reported as 20.084 million bales, up slightly from the previous report and 17 percent over last years crop. Cottonseed totals this month were registered slightly higher with a 2001 crop total of 7.533 million tons. Compared to last year’s production this is an increase of 1,097,400 tons.

The states which showed the greatest production increase this year follow in decending order with the amount in tons reported over last year’s total: Mississippi—250,000, Georgia—187,000, Arkansas—156,000, Alabama—122,000, Texas—105,000, Tennessee—86,000, Missouri—65,000, North Carolina—51,000 and Louisianna—46,000. The only states showing cottonseed production below last year’s level are Arizona and California, with 16,000 and 34,000 below respectfully.

GINNING REPORT: The ginning report from January 11, showed the running bale total as of January 1, 2002 at 18.672 million bales, which is 3.6 million bales above the three-year average for the date. For the most part, the ginning statistics closely match the cottonseed production data per state. A deviation in the numbers, which is of interst, is the 82,000 bales Texas is showing behind their three-year average. But with gins in Texas still running, they have had the opportunity to closed the portion of the reported gap in production. As in previous ginning reports, all other states reporting showed results above their three-year averages. The greatest percentage increases were noticed in the Mid-South and Sotheast. This supply situation is reflected in price spreads between regions. 

COTTONSEED MARKET: Pricing in each state of a given region are beginning to move in the same direction. This can be seen with the firmness in all markets of the Southeast, while the Mid-South markets are starting out the year slightly softer. The support in the Southeast coincides with the slowdown of ginning in the region, and earlier quoted prices for seed out of storage.

As is the normal case in January, we are in the mists of post-holiday doldrums. With most ginning recently completed in the Southeast, gins are not interested in selling what they just put into storage until it pays to take it out again. End user feed demand is modest in most locations outside of California. Reported trading is mostly happening with resellers looking to bolster their position. This lack of demand is keeping most markets quiet, and is getting some players concerned about demand later in the year. Most Southeast nearby offers are up slightly, but remain in line with quotes extended before the holidays for the January or JFM timeframe.

The nearby Texas market has traded up for the first couple weeks this year. Forward pricing is nearly flat through August, and teetering on an inverse as the deferred bid is a dollar below the latest nearby trade. With most buyers only interested in nearby supplies, we may continue to see nearby premiums and price incentives for deferred contracts.

The California market is fortunate to have strong fundamental nearby demand, and is cited as the reason for the steady pricing. This is the only market that is trading at the same level as a year ago. Looking forward, prices are flat for the summer, which is keeping buyers uninterested in strong forward bookings beyond the first quarter. Recent lack of volatility has taken the allure out of the reseller paper trading middle market. Abundant rail supplies are helping keep the market on an even keel. Once closer to spring, more price movement may develop, as the amount of imported supplies will become a wildcard for this market, and shape pricing at eastern points of origin for railed supplies. 

COTTONSEED SUPPLY/DEMAND BALANCE SHEET UPDATE: This month’s USDA Oil Crops Outlook report for January provided few changes to the cottonseed balance sheet. The USDA tweaked up production by a thousand tons. Their crush number was taken down by 50,000 tons. These two changes went directly to the ending stocks category and raised the figure by 51,000 tons.           

This month our Sparks’s balance sheet shows a higher production number matching the USDA production number. This production number is still considered a forecast and is subject to change. Due to the lower net value of cottonseed to crushers in the Mid-South, we have lowered our crush by 150,000 tons. Granted oil mills have strong ownership positions this year, but if the economics of oil crushing don’t improve, more of the crushers’ seed holdings will go to the feed industry rather than the oil mill. These two factors have raised ending stocks by 233,000 tons. This year we expect to see record high ending stocks, unless more demand moves into the market.