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.

USDA REPORTS: This month’s highly anticipated Crop Production report has resulted in further increases in corn and bean values. The report’s all cotton production of 18.43 million bales is higher than most expectations. The harvested acreage was pegged at 13.11 million acres, which is at a higher rate to planted acres than recent years. This higher ratio is due the best crop development in Texas for the past few years. As usual, Texas is the wildcard state that will have the greatest impact in the final bale count and cottonseed production. USDA’s cottonseed production forecast is 6.84 million tons, which is higher than previous estimates and is only 612,000 tons below last year’s near-record crop. Sparks’s cottonseed estimate is only marginally smaller at 6.8 million tons. Sparks’s seed projection is lower based on harvested acreage at 13.02 million acres combined with lower expected yields.

COTTONSEED MARKETS: Since our last installment, nearby CBOT corn has jumped up nearly fifty cents a bushel, while soybeans have gained roughly twenty-some cents. Even though there is firming for the futures, cottonseed values have little to show during the run-up, which illustrates that cottonseed values tend to trade off their own supply and demand fundamentals. Ample supplies are holding cottonseed values back due to last year’s crop, in addition poor dairy economics are hampering nearby demand.

The Production report gives some mixed messages with higher than expected cottonseed supplies and lower corn and bean production. The lost of corn and bean production can potentially outweigh the increase in cottonseed supply with the net effect of stronger prices. If soybean prices remain close to the six-dollar level, dairymen will likely leave soybean-roasting equipment idle and replace roasted beans in dairy rations for more economical cottonseed. The scenario of a strong soybean price will likely bring more Midwestern buyers to use more cottonseed in their rations.

In the Southeast, nearby prices are steady with little buying interest, which is keeping prices nearly level with last month. It appears that these markets will continue to offer only slight firmness without new late-summer demand coming to market. Nearby offers backed off three dollars in Georgia on reduced buying interest. Merchants in the region are beginning to grumble about end users behind schedule, which may apply more downward pressure for nearby pricing. With supplies backing up in the Far West on rail supplies, some buying interest has left the market leaving sellers more willing to accept bids.

Mid-South markets are reportedly quiet, but some contacts have mentioned bids have out stripped offers. Most notably, Memphis North for Jan – April traded at $118 and was re-bid without trading. The Missouri Bootheel saw the most activity with the nearby trading a dollar lower and as-ginned is nearly even to the nearby. Although over the past few weeks the Mid-South has seen little upward movement, old crop still may have the opportunity for further increases before mid-September.

At mid-month, the Texas market looks like it is beginning its price decline to new crop values. Last week was likely the top for old crop, helped by harvest hampering rains in the coastal bend region. If the movement of new crop is still delayed, price will hold ground, however, with more offers becoming available prices are expected to retreat. This year’s first USDA Ginnings Report showed Texas with a running bales ginned total of only 55,600 bales, which is a little over one-half of the previous year, and roughly a third of the three-year average.

The California market traded actively over the first couple weeks of August, but prices moved lower with abundant supplies. The market is feeling heavy with less forward bookings, which may result in firmer values come 2003. This may be the beginning of a low trough, which could last a couple months. Yet, prices still have the potential to pop up briefly before the arrival of new crop supplies if there is a buyer’s rush based on end user demand.

COTTONSEED SUPPLY/DEMAND BALANCE SHEET UPDATE: The USDA made many changes to the new and old crop balance sheet, which lowers ending stocks for both years. On old crop, imports were raised 95,000 tons. USDA’s crush has moved down 35,000 tons to the level Sparks has estimated for the past several months. The feed, seed and other category was raised 250,000 tons, which lowers ending stocks by 100,000 tons. On new crop, USDA’s biggest change was the 485,000 ton increase in production. Feed, seed and other, was raised 370,000 tons and exports were increased 100,000 tons.

The major change to Sparks’s old crop balance sheet is a 200,000-ton increase to the feed, seed and other category, centered primarily on great feed disappearance from higher cow numbers in western states. New crop beginning stocks are lower, but overall supply is higher based on a production increase of 300,000 tons. Exports are brought up based on news of Mexico being a more aggressive buyer this year. The feed, seed and other category is upped 250,000 tons, because of anticipated improvements in feed demand for cottonseed based on the general firming of feed ingredients. The crush is taken down 50,000 tons, but ending stocks are unchanged.