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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.

NEW CROP FORECAST: Considering Sparks Companies 2002 all cotton planting intentions of 15 million acres, which represents a five-persent decline to a year ago. Considering a variety of other factors, we estimate a cottonseed crop next year of 6.6 million tons. Forecasting averages were skewed, because of near perfect conditions in some regions with abandonment down, and seed yields much higher.           

US CENSUS CRUSH REPORT: The latest crush report shows 261,903 tons of cottonseed were crushed in December. Compared to a year ago, this year’s total crush is only 3% above last year’s crush. When looking at a five-year average, this year’s crush, year to date, is only 84% of the average. Somewhat lower production in December relative to November can be expected. This year’s midweek holiday schedule can be a part of the lower production. In order to reach our annual crush expectations, a couple months of over 300,000-ton production will be necessary. But, with each passing month, chances are beginning to fade.           

At the end of December, oil mill stocks of cottonseed totaled 1.95 million tons. Thus far this crop year 1.1 million tons of seed have been crushed. The combination of these two figures suggests the total ownership position of oil mills for this crop year is somewhere around 3 million tons. At the current rate of crushing, we may be able to have a total crush of 2.75 million tons this year, only slightly above last year’s. This would mean the crushing industry would have 250,000 tons of cottonseed to either put into the feed market or carry over into next year. The oil mill position has the greatest potential to influence cottonseed markets.           

Thus far, the cottonseed crushing industry is behind production expectations. Crushing progress has been hamstrung by weak net seed values. Stronger premium for cottonseed oil over soybean oil, and steadiness with cottonseed meal prices will help net values improve marginally.           

COTTONSEED MARKET: The heavy feeling across markets continues. Since the end of January, reseller longs are still the main feature in the market keeping things soft by accepting the few bids that are put out in front of them. Some contacts suggest that price stability is possible, if only gins would stop pressuring long resellers to move the seed they have booked. The current lack of demand is driving prices lower with minimal takeout of supplies to support prices further out. The ones most concerned are seed holders on the sidelines, who are seeing summer values go into the tank. Considering the supply situation in all markets, this may be an inevitability which may need to take its course sooner rather than later.           

In the Southeast and Mid-South, nearby pricing and summer contracts are nearly flat. The Memphis nearby moved another couple dollars lower with only minimal supplies changing hands. Contacts have reported Memphis new crop traded once and $92, and then promptly withdrawn. Even though acreage surveys are showing lower cotton planting, a shortage of supply seems less than likely. In the Southwest, the West Texas nearby traded a dollar higher with some variance in price relative to location. Market contacts have mentioned that trading is sloppy with limited end user dairy demand. With recent dairy cattle reductions in Texas, lost demand may relate to weaker prices. This sediment is also founded in the concerns over the fate of crushers in the state. In the Far West, abundant supplies appear to have smothered nearby demand. Nearby delivered markets in the Northeast and Midwest are benefiting from cheaper freight rates. Merchandisers, however, don’t expect these freight prices to last much longer, as the current truck surplus will be taken out of the market by the fertilizer business. Suppliers in the Corn Belt have complained of lackluster demand. They imply dairymen are not willing to book forward due to milk prices, and their questions surrounding the new farm bill.          

COTTONSEED SUPPLY/DEMAND BALANCE SHEET UPDATE: This month’s USDA Oil Crops Outlook provided several changed to the supply and demand balance sheet. The USDA lowered import expectations by 23,000 tons. The largest change this month was the 150,000-ton reduction to their crush forecast. On a positive note, exports were increased by 50,000 tons. The feed seed and other category is 140,000 tons higher this month, this category is nearly a half a million tons higher than a year ago. Resulting disappearance is up 40,000, which nets a lower ending stock by 63,000 tons.

The Sparks balance sheet is not as bullish as USDA’s due to a number of reasons. However, one bullish point is a greater reduction of imports. Recently we have heard a couple boatloads of cottonseed were sold back to Australia, so we have taken down our imports by 70,000 tons. Granted these supplies can always be bought back, we still expect later even more may be sold back into the Australian market or redirected to other markets.           

On the demand side, the greatest change is the reduction of the crush by 150,000. We don’t foresee oil or byproduct values supporting a much larger crush. We are leaving exports unchanged for now, but contacts in the industry have mentioned that some bookings of seed to Mexico have fallen through. Due to the lack of feed demand noted from the trade, we are not changing the feed, seed and other category. The ending stocks are over double the carry out last year.