Southeast

Mid-South

Southwest

Far West

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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.

COTTONSEED MARKETS: Since last month, most markets are showing some firmness. The buying that is taking place is reportedly coming from short positions periodically moving into the market to fulfill nearby contract requirements. Meanwhile, most in the market are frustrated by the lethargic demand for new business.

Offers have been on the rise in the Southeast and Mid-South. Supplies are adequate, but markets are reported thin in the Mid-South and Southeast as some farmer-ginners are busy with planting. In the Southeast, the Geogria and Alabama prices have shown the most nearby firmness thanks to short coverings. Only since the beginning of the month has there been greater interest in the deferred contracts, although the coverage during the OND period is still very limited. Part of the reason behind the buying interest is the fact that now OND prices are below nearby pricing.

The Texas market hasn’t participated in the price firming noted in other markets. The sideway price trend is due to abundant seed supply. Offers from gins and crushers alike are met with little buying interst. Expectations are for prices to remain stagnant until the market is able to trade based on new fundamentals like new crop supply concerns.

Only recently the California market has shown more upward price movement. May for California typically means imported Australian cottonseed. Last month, one vessel had already landed with more reported either on the water or scheduled to ship. Most of the talk in the California market is focused on the amount of cottonseed, which is being sold back to the Australians. The Australian market is paying a couple dollars over the current California pricing. This fact leads us to believe that pricing in the Far West has a bias towards firmness. The dramatic price swings last year may not be repeated, but if nearby supplies tighten because of logistical problems, there will be moderate price upswings.

USDA REPORTS: The May Crop Production Report shows cottonseed production for 2001 at 7.452 million tons. This is a 81,000-ton reduction in cottonseed production from last month’s report. Based on higher running bales reported last month, this change was not in the direction originally expected. Though this amount is not large, any reduction in production will likely be perceived as bullish. Contrarily, the May Oil Crops Outlook report shows cottonseed production above last month’s number at 7.6 million tons, which is closer to this writer’s expectations.

The Crop Production Report provided a simple breakdown of where cottonseed was sold: oil mills or “other”, i.e. feed, seed. The report shows 3.86 million tons of cottonseed was sold to oil mills, while 3.59 million tons fell under the “other” category. This breaks down to 52 percent of sales going to oil mills, and the remaining 48 percent going to seed, feed and “other”. Based on our projections, the actual amount of cottonseed to be crushed is roughly 35 percent of the total supply. Therefore, nearly a third of what oil mills are listed as buying will likely be sold to the feed, seed and other category.

In May, the annual 2001 Cotton Ginning Summary was released. All cotton production is listed at 20.3 million bales, the same as reported last month. This amount represents an 18 percent increase over last year’s total. The 2001 crop was helped by an overall two percent increase in planted acres, but also by a six percent increase in acres harvested and a 73 pound lint-yeild-per-acre-increase. The 2001 output is the largest crop on record. The upland cotton production in 2001 was 19.6 million bales, which surpasses the 1994 record of 19.3 million bales. American-Pima production totaled 700,400 bales, up 80 percent from 2000, and eclipsing the previous record of 691,700 bales in 1989.

The trend of consolidation and increased production continued among ginners. There were 48 fewer gins running this year, with 970 active gins during the 2001 season. There were 413 ginning firms processing more than 20,000 bales in 2001, compared to 336 the previous year. The larger acreage and larger yeilding crop does help make this statistic more dramatic.

COTTONSEED SUPPLY/DEMAND BALANCE SHEET UPDATE: The May USDA Oil Crops Outlook report provided some changes to their old crop supply and disappearance balances sheet, and is our first look at the new crop balance sheets. Overall, the USDA report paints a bit more bullish picture for old and new crop: lower production expected and ending stocks.

For old crop, USDA raised imports slightly by 6,000 tons, while production was reduced to come in line with the 7.452 million tons reported in the May Crop Production Report. On the disappearance side of the equation, the reductions came from crushing down 35,000 tons, and the feed, seed and other category lowered by 40,000. Exports showed some improvements up 5,000 tons. The net outcome of the overall reduction in supply helped reduce the ending stocks by 80,000 tons. On Sparks’s old crop balance sheet the changes include a reduced production number, a slight increase in exports and an increase in feed demand. These changes relate to a 141,000-ton reduction in ending stocks.

On the new crop balance sheets, the greatest difference on the supply side of the balance sheet is with beginning stocks. USDA’s beginning stocks are lower than Sparks’s numbers by 256,000 tons. There is a 150,000-ton difference on new crop seed production with Sparks forecasting a larger new crop. USDA’s import expectations are lower by 65,000 tons, which is an extremely difficult call at this point in time considering Australia has yet to plant the crop we are considering. The difference in total supply is 421,000 tons, with USDA showing lower supply.

On the demand side, the difference between disappearance totals is 245,000 tons with Sparks expecting stronger demand from export and feed markets. Expected crush is the same number for the USDA and Sparks, which is even with Sparks’s forecast for the current-crop year. Due to recent trends of declining Mexican cotton production and increasing cottonseed imports to Mexico, Sparks expects 45,000 more cottonseed to be exported than the USDA. For the feed, seed and other category, Sparks expects 200,000 tons more disappearance than USDA. The tonnage expected to move to the feed industry is down based on the elasticity of price due to supply being tighter than a year ago. Ending stocks are much lower suggesting that pricing for new crop supplies will be above current crop levels.