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 latest Cotton Ginnings report shows a running bale total of 16.169 million bales, as of January 1. In the graph, Texas continued to show dramatic improvement; this is the first ginning report this season with totals above it’s three-year average. As expected, North Carolina slipped further behind the average by 77,000 more bales this report. 

This week’s all cotton running bales total is still 975,850 bales below USDA’s latest all cotton production estimate of 17.145 million bales. This suggests that roughly 350,000 tons of cottonseed should become available after the first of the year. At this time however prices and contacts are suggesting that gins are storing what they can and leaving nearby markets tight. 

USDA’s crop production report lowered all cotton production by 230,000 bales. The net effect of this change is bullish for the cottonseed market, which helps explain continued stronger prices. Cottonseed production is estimated at 6.419 million tons. This is a reduction of 77,700 tons compared to December’s report. Relative to the three-year average, cottonseed production is off by over 325,000 tons.

COTTONSEED MARKETS: The upward price movement that started before the Holiday season and retained strength during the first part of month appears to be losing some steam at mid-month. Typically during January, prices have a tendency of drifting down from the highs after the holiday season. However, this year’s prices have bucked the trend and moved higher thanks to aggressive late-season buying. From the supply side of the market, tightness has helped elevate prices, but the demand side of the market from feed ingredient end users is not following through adequately to support current price levels.

In the Southeast, the supply situation is expected to continue being the overriding fundamental. The Carolinas continue trading at similar prices. The January-March contract is at the same price level for Carolinas and North Alabama. The next market in the region to see strength will likely be Georgia. For some weeks, quotes have been hiked more often than trades have actually taken place. This lack of trading to support prices raises questions about how long such values can be sustained. 

In the Mid-South, seed availability continues to be the main story in the market. Some contacts have suggested, at this point in time relative to last year, the percentage of cottonseed inventories gins have unsold is as much as on third less. Resellers are reportedly the main buyers in the market, which is also helping, keep prices firm. The size of recent sales is only on small single-truck type deals. Some merchants in the region have mentioned stronger rail business as justification for their firmer values. The Memphis North January-August contract is offered even money with the JFM, which may hint that prices may remain fairly stable for the balance of the season. 

The Texas market is enjoying buying interest from crushers, resellers and the export market. At this point, values have firmed quicker than most had originally suspected. The nearby week over week is offered higher between four and six dollars. Regarding forward offers, there is very little buying interest, because traders are concerned that if oil mills turn aggressive sellers, prices will experience a drastic drop. Buyers in the region are reported as cautious. 

For the Far West markets, seed availability appears to be a non-issue; the bigger question is if dairies will be able to keep current with sales already on the books. Some have suggested that the eighteen-dollar spread between the nearby and April-September position is too wide for the market to support. End users will likely continue with only hand-to-mouth buying until there is a notable improvement in milk prices. 

Towards month’s end, some downward price movement may be required to move unclaimed inventory needing to find a home. The general impression across markets is that cottonseed inclusion rates have slipped because of low milk prices. Most dairies have slipped down one notch on our cottonseed dairy buyer profile as shown on the Cottonseed Delivered Points page. Cottonseed prices will remain well above year ago levels in an attempt to ration demand.

COTTONSEED SUPPLY/DEMAND BALANCE SHEET UPDATE: This month’s USDA cottonseed balance sheet has offsetting shifts in tonnage, which leaves ending stocks unchanged. Supply fundamentals suggest a tighter market with production reduced by 78,000 tons. Exports have seen further improvement, with an increase of 50,000 tons. The feed, seed and other category is taken down 128,000 tons. This reduction lowers total disappearance by 78,000 tons. 

Beginning stocks on the balance sheet from Sparks Companies has been lowered to match USDA’s figures; this is the greatest change for this month. The carry in from last year’s crop was estimated as a couple hundred thousand ton higher than what USDA is showing. Production is reduced 60,000 tons based on the latest crop report data. Imports are left unchanged. For the time being, it appears that chances of any more imports are minimal for this crop season. US prices would need a significant rally in order to attract imported supplies. Compared to last month total supplies are down by over two hundred thousand ton.

On the demand side of the balance sheet, crush is left unchanged as only now reports of better runtime are made mention, which could mean the industry will be able to achieve the forecasted amount. Exports are raised 20,000 tons from strong Mexican interest. Strong prices are rationing demand, and the feed, seed and other category is brought down 250,000 tons. This is based on lower inclusion rates, because milk cow numbers have remained mostly stable, but expected lower. This nets a much tighter market suggesting prices will remain stout for the balance of the season.