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: The Cotton Ginnings report released December 10, pegs all cotton ginning at 12.367 million bales. This is the amount ginned as of December 1st, which represents just over 70% of this year’s crop, considering the December USDA Crop Production report forecasted US all cotton production at 17.375 million bales. Comparing this year’s previous ginning reports with three-year averages, Texas was able to make up the most ground and is no longer the state lagging furthest behind. Southeastern states are now the furthest behind with North Carolina dropping over 200,000 bales behind the three-year average compared to last month’s CIM. Georgia is a close second, and South Carolina is not far behind after slipping over 100,000 bales. At this point in time, states from the Southeast and Mid-South are expected to remain below their three-year average. 

COTTONSEED MARKETS: With more ginning completed and the year-end holidays around the corner, December prices are beginning to firm with fewer offers in the market place as can be expected. Seed quality continues to be a major sticking point for the industry, and a topic that may result in changes of how cottonseed is traded in the future. Overall, moisture and FFA levels were much higher in the Southeast and Mid-South. There are plenty of variances in tested levels relative to origin, when the cotton was picked, ginned and how the seed was handled. On a positive note, moisture levels lately have moved lower thanks to cooler weather and additional handling at the gin level to lower moisture levels. 

The quality issue has created some unfortunate surprises for gins selling to oil mills when quality discounts substantially lowered the amount the gin is paid. For oil mills, high moisture and FFA propose challenges in keeping production on schedule and also limits oil yields per ton of cottonseed. The current high premium for cottonseed oil is really nominal, because most of the cottonseed oil being shipped today was sold a couple months ago when prices were much lower. 

In the Southeast, the market appears tight as values have firmed, and the forward offers have been pulled. Sellers have turned to the defensive and are not interested in over committing themselves in lieu of their tighter supplies. These latest price increases are likely a result of some supply shortcomings. This tight supply situation is expected to be a standard feature for the region. 

After an active November, Mid-South markets are quieter with the beginning of December. Many of the gins in the region are only willing to work on existing contracts for supplying seed and are hoping to finish ginning before the holidays. Nearby offers are priced with a storage premium. The low priced seed trading in Louisiana is reportedly destined for feedlots. Some gins in the region are using feedlots as their main market, because of sub-par seed quality. 

Southwestern prices are marginally firmer thanks to continued strong buying interest. The pace of harvest and ginning progress has picked up, but ginning in the state is expected to continue well into January. This fact will likely help prices soften some after the holiday season. However, if short positions from neighboring markets rush to buy cottonseed in Texas, prices may continue strong throughout the summer months. Forward offers and bids moved up as well this week, yet better buying opportunities will likely come to pass after the holidays.

At mid-month, nearby California offers firmed, but slipped lower on mediocre buying interest and much more available rail supplies. Without an improvement in milk prices, some suggest that the California market will have difficulty mustering sufficient demand to handle all of the supplies destined for the state. Prices may need to move lower on forward contracts to attract more demand. These types of price gyrations can be expected throughout the holiday season. 

COTTONSEED SUPPLY/DEMAND BALANCE SHEET UPDATE: There are offsetting changes made to this month’s USDA cottonseed balance sheet. Due to the weather problems during the harvest season, cottonseed production was lowered by 155,000 tons to 6.497 million tons. Imports were scaled back as well by 55,000 tons. This represents a total reduction in supply of 205,000 tons. Compared to last year, availability of cottonseed is reduced by over a million tons. On the disappearance side of the balance sheet, the USDA lowered their crush number by 130,000 tons. The feed, seed and other category was lowered by 75,000 tons. The net effect of this month’s changes represents a tightening of the market by only 5,000 tons. 

After the reductions in supply made this month and the previous, the balance sheet of Sparks is more bullish. Production is forecasted lower by 100,000 tons. From USDA’s December Crop Report, all cotton forecasts for the US are down 440,000 bales. Imports were lowered by 65,000 tons with the reported Australian supplies being sold back. This year’s slower ginning rate is making supply forecasts more difficult for the time being. 

On the demand side, the crush level was left unchanged, but may need to move lower if poor runtimes persist. USDA’s cottonseed oil production forecast showed a 20,000-ton reduction. However, crushers still have time to increase their crush. Cottonseed oil price will likely remain relatively high for the balance of the crushing season, which potentially will attract more seed to the crush later in the season. The feed, seed and other category is left unchanged, because contacts have reported above average amounts of lower quality seed has been sold to feedlots. Dairy economics are expected to improve by the end of the first quarter, which will provide for improved demand during the last half of the crop year. These changes tighten the market by 165,000 tons.