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.

COTTON CROP REPORTS: USDA’s September Crop Production report had relatively small changes to corn, soybean and cotton production forecasts relative to those in the August report. All cotton production was forecast at 18.134 million bales, down 2 percent or 305,000 bales from August. The implied national average yield was unchanged, but harvested area was lowered by 221,000 acres. This production scale back resulted in a new crop cottonseed forecast of 6.738 million tons, which is down by 102,000 tons compared to last month.

Compared with last month’s report, the greatest harvested acreage reduction was noted in Louisiana, down 70,000 acres followed by Arkansas down 40,000 acres. Contrarily, Texas is expected to harvest 100,000 more acres than forecast last month, and lint yields are up six pounds per acre. The largest projected reductions for lint yield per acre were in Virginia (-192 Lbs.), North Carolina (-133 Lbs.), and Georgia (-50 Lbs.). Lint yield increases per acre were reported for Arizona (+41 Lbs.), Louisiana (+40 Lbs.), and Missouri (+25 Lbs.). Compared to last year, this information confirms the expectations for sub-par cottonseed production in the Mid-South and Southeast, with greatly improved supply in the Southwest.

COTTONSEED MARKETS: September is the month where most downward price movement can be expected, because of the arrival of new crop supply. This year however, during the summer there has been less of an old crop to new crop spread compared to previous years. Only during the end of August and beginning of September have the spreads widened in most markets, except California.

In the Southeast, the Carolinas’ old to new crop spread has widened from twelve to fifteen dollars. Nearby offers are reportedly few and far between, which is the main reason prices are firm in the Carolinas. There is a new crop supply premium built into the new crop price, with acreage lower and drought conditions experienced for most of the growing season in the Carolinas. Georgia prices are the flattest in the region due to the depressed rail markets out west. There is little news of oil mill bids in the region, which also provides only a fuzzy picture for prices going forward. Generally speaking, the trade anticipates oil mills will come out with bids several dollars above last year’s price.

Mid-South old to new crop spreads are not as wide, with much less buying interest being reported in the market. Dairy buyers are less likely to pick up an extra truckload or two of cottonseed when Class III milk prices are below the ten-dollar mark. Reports on the condition of new crop in the region are above average, but supply will not be the same as last year as you can see in the Regional Cottonseed Production graph. This is another factor, which is playing into the narrow old and new crop spread. By the end of September the region is expected to be running full bore and nearby prices will likely be trading below the current “as-ginned” price.

Texas provides the widest spread as some short positions in the market are supporting nearby values. Rains have bolstered the prices, which has slowed the harvest’s progress. The running bale total as of September 1^st is 537,150 bales, which is over 125,000 bales behind the three-year average. By next month the state is estimated to be back on track with the average, as a result, the nearby will be likely trading right around the hundred dollar level, or just below that point.

With no fundamental changes in California, it is difficult to foresee any sustained price increase for the next few months. Apparently there are more than adequate supplies in the state between shipped, railed, and now new crop “as-ginned” supplies. Buyers are seeing flat prices between nearby and deferred offers, which limits their interest in sticking their neck out and booking any forward supplies. It will likely take a few more months for the current supply glut in the market to dwindle, and when some tightness comes into the market, we can expect firmer pricing.

COTTONSEED SUPPLY/DEMAND BALANCE SHEET UPDATE: From USDA’s Oil Crops Outlook report released mid-month, major changes have been made to their old crop and new crop balance sheet. What comes as somewhat of a surprise, the old crop crush is reported 41,000 tons higher. Latest census reports suggest that the crush was just shy of the 2.75 million ton used last month. The feed, seed and other category was lowered 16,000 tons. This results in ending stocks being lowered 25,000 tons, which portrays a tighter old crop market than most have thought or traded.

As foreshadowed in the Crop Production report earlier in the week, the USDA lowered their new crop production estimates by 102,000 tons. Crush estimates are raised 50,000 tons, while exports are reported lower by the same amount. The bearish news in the report is the 127,000-ton reduction in the feed, seed and other category. The reductions on the demand side, equals the supply reductions, thus ending stocks remain unchanged.

Considering the woes of the dairy sector, some end user demand is already likely lost. Anecdotally, some cottonseed users in the Midwest and Far West are reportedly migrating form the Group 1 type user to Group 2 user in our cottonseed dairy buyer profile. Because of this, Sparks has lowered their feed, seed and other category by 100,000 tons.