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.

2003 ACREAGE INTENTIONS: Late January, Sparks Companies released cotton planting intentions, which are estimated at 14.03 million acres. This represents an increase of only a half of a percent, compared to last year. Earlier this month, The National Cotton Council released results of their Annual Early Season Planting Intentions Survey. The NCC survey estimates only 18,000 acres more toward cotton production. These are first estimates for new crop and as we get closer to Spring these figures are subject to change. In March the USDA will provide their first cotton acreage forecast.

The regional breakdown of the forecast from Sparks, has the Southeast region with the closest cotton acreage to last year, only slightly reduced by 30,000 acres. The greatest reduction is for the Mid-South, down 130,000 acres. The Far West and Southwest regions are expected have more cotton acres. The Far West is slated to be up 105,000 acres, while the Southwest posts 122,000 more acres. With more than 100,000 more acres, Texas is the state with the greatest cotton-acre increase, compared to last year.

COTTONSEED MARKETS: February is typically a slow month for cottonseed trading and as a result, prices gravitate to lower levels. This year, the trading activity is lethargic, nonetheless offers continue reaching a couple dollars higher week after week. On the supply side of the equation, the market still appears tight, which is the strongest foundation supporting firmer prices. Continued price increases are perceived by some, and that sellers are trying to keep offers just out of reach of buyers. Most in the market are expecting prices to continue steady and keeping close to their current range.

Price levels in the Southeast and Mid-South have reportedly caused some crushers opting to move a truckload of cottonseed here and there to the feed market. Typically, when oil mills start turning seller, this foreshadows some downward price movement. This year however, there should still be enough buying interest in the market to keep prices stable. Some have suggested that the selling is only an ad hoc solution for getting rid of unwanted seed inventories. The general conviction is that this will continue to be a sellers’ market for the balance of the year.

Price increases continue to take place in the Southeast, with nearby quotes nearly the same for every state. North Carolina’s summer offer is back on the market shoting up nearly twenty dollars from quotes two weeks ago. Traders are suggesting that buyers are very patient and some have reached the point where they are ready to walk away from cottonseed in their feed rations.

Mid-South markets are reporting small volume trades at other points except Memphis North. Contacts are talking about how some booked seed is not shipping as scheduled. This lack of execution could cause a short duration of heavy supplies in the nearby market, and could make prices stall out. With a variety of buyers in the market, sellers should continue to have the upper hand in the market and there should be little downside impact on prices.

The Texas market continues to firm, but only very light trading reported as of mid-month. The hot and heavy reseller buying appears to have cooled, but at the same time no seed holder is willing to offer any lower prices. Seed is reportedly moving from old contracts, and dairy buyers are kept away because price is above their break even level. Merchants are concerned that some dairy demand is lost, and do not foresee any turnaround soon. Dairies are looking at cheaper alternatives for fulfilling their fiber requirements from other gin related products. Mild winter weather over the past several weeks is also another reason for lighter feed ingredient trading in general. 

The California market is up over ten dollars since the last report. Prices are holding steady keeping a typical spread to FOB markets in the East, but nothing was reported trading for the nearby or deferred. Rail supplies are adequately meeting demand, but some have suggested the flow of seed has slowed. Inclusion rates are said to be slightly lower, and this may take some of the luster out of the nearby market. If demand continues to hold together over the next several weeks, there will be little downside to price. But, if there is a significant reduction in cottonseed use, there is still an outside chance for lower summer prices.

COTTONSEED SUPPLY/DEMAND BALANCE SHEET UPDATE: This month’s USDA cottonseed balance sheet has offsetting changes on the disappearance side. The USDA lowered their crush forecast by 40,000 tons and shifted the amount to the feed, seed and other category. With beginning and ending stocks unchanged; it would appear there is no change to market fundamentals.

The disappearance side of the Sparks Companies balance sheet has been lowered. The crush total has been lowered 50,000 tons, but cottonseed oil prices suggest crushers have more financial motivation to crush. Using typical forecasting techniques on cottonseed crush, total crush should be lowered to the level of 2.54 million tons. This lower number is based on crushing thus far this year. However, strong late seed buying from crushers and low cottonseed oil stocks should draw more cottonseed to the crush during the last half of the crushing year.

The feed, seed and other category is lowered 45,000 tons. Feed demand from dairies is below earlier expectations because of the combination of poor milk prices and high cottonseed prices. The Northeast and Midwest are areas where demand loss is most noticed. These changes raise the ending stocks by 95,000 tons.