Southeast

Mid-South

Southwest

Far West

Specially Processed Products ($/ton)

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.

COTTONSEED MARKET: The toppy feeling noted in the market last month has developed into further price deterioration. The lack of buying interest over the past several weeks has made markets much more difficult to call, as bidders sense the weakness and have headed for the hills. Sellers are not eager to offer their available supplies at much lower values. Declines in recent weeks are a bit larger than some had expected. This downward pressure may be in part the result of lingering supplies of May contracts in the market needing to find a home or suffer the consequences of being washed out. A more likely scenario is that the short resellers now have sufficiently padded their position, and have come to the realization that now the pendulum is starting to swing in the other direction and are looking to pitch their position. Some of these traders may have been optimistic holding onto inventories waiting for a turn around in dairy economics and hoping for more demand and price strength at the end of the season.

Dairy farmers have reportedly decreased cottonseed inclusion rates en masse, some merchants have mentioned that it is evident based on their much larger bookings for cottonseed extenders or substitutes. It looks like the market is getting back to taking hints on price direction grounded fundamentally on end user demand rather than short positions. The price run up during the first quarter of this year did successfully curtail demand. Now, it is questionable if maybe the increase was too rapid and didn’t allow enough end users to take on ownership before the run up. Several weeks ago when prices were near their highs, some in the trade suggested that a twenty-dollar reduction would likely spur another round of end user buying. Prices are now closer to the level that earlier was thought to attract more dairy buying, and markets are still reportedly quiet. In order to increase cottonseed’s inclusion rate in dairy rations, prices may need to move an additional twenty dollars lower.

As mentioned last month, the Southeast is showing the greatest amount of softness. The rush to move supplies is reportedly associated with some of the lost export business. Some sellers appear to be waiting things out, hoping the current supplies on the market will disappear and give the impetus for prices to stabilize. However, more sellers are in the market making a rush to the exits. It is still difficult to second guess, but the rate of decline will likely slowdown before the end of the month. Merchants are suggesting that values are still out of reach for most end users, so more downward movement should be expected. With all the activity in the spot market, and some improved weather in the region, there was less interest in trading new crop.

Mid-South contacts were giving all different words to describe the quiet market. The lack of Mexican export or rail buying interest has left the market weighed down. Making the market even quieter is the fact that dairies are not interested in even looking at new crop pricing. The slow progress of new crop in the region due to frequent rains and wet fields are a factor of concern for some. Some are suggesting the fields planted earlier are developing better and will likely yield more seed, while the later plantings are looking stunted by the excessive moisture. If temps don’t get back to average ranges and if the atmosphere doesn’t dry out, some overall yields will likely be lower.      

Texas nearby offers are lower by nearly ten dollars, but without any real bids or trades, the market has yet to be tested. Values in Texas are reportedly moving in tandem with other markets. There was more reseller buying interest in new crop after storms reportedly destroyed somewhere between 500,000 and 750,000 cotton acres in West Texas. Some producers may still re-plant cotton, or switch to a different crop altogether. Damage to irrigation equipment was noted in a variety of locations, which is also problematic for growers. Nonetheless, most in the region are of the opinion that the net effect of moisture is still positive and overall should help dryland fields make a crop.

The California market is reportedly following the price reductions in the east. At mid-month, the rail market has been nonexistent for the nearby as prices are well under sellers’ price ideas. Market sentiment has shifted to consider how much more of competitive ingredients are getting sold and whether or not there will still be room in rations for cottonseed. Some merchants are pressing to see what price level will attract end user demand once again. Similarly delivered dairy markets in the Midwest and Northeast are under a cloud, as Class III milk prices have remained under ten dollars for the past several months.

COTTONSEED SUPPLY/DEMAND BALANCE SHEET UPDATE: As expected last month, USDA’s balance sheet for old crop had a 235,000-ton reduction to production. This amount was taken directly out of the Feed, Seed and Other category. As a result of this reduction the Feed, Seed and Other category has dropped to the lowest level since the ’98-’99 crop year. The new crop balance sheet from USDA has been left unchanged.

Sparks lowered the old crop Feed, Seed and Other category by 50,000 tons. This reduction is based on reports of many more cottonseed replacers being used, and other cost effective alterative feed ingredients being made available to the market. If reports of reduced inclusion rates continue, this demand category may need to be pared further back, which could be fundamentally bearish for new crop. Old crop ending stocks are higher by 50,000 tons.

However, a 50,000-ton drop in new crop production offsets the increase in beginning stocks. Current below average crop condition ratings in Texas, and some Mid-South states could limit new crop’s yield potential. More time is required to see if there is still amble opportunity for new crop to bounce back from current conditions. One major unknown still lingering for the later part of the growing season is that long-term forecasts are including an active hurricane season. This is also a reason to keep production estimates more conservative.