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: USDA’s September Crop Production report lowered cotton production by one percent to 16.9 million bales. The trade’s range was between 16.7 and 17.4 million bales, so this is clearly closer to the lower end of the range. Compared to USDA’s August Crop Production report, new crop cotton was lowered by 160,000 bales. The main point for less production was a 110,000-acre reduction in harvested acres from the previous report. September’s harvested total is 12.2 million acres. Weather related problems like heat and dryness in West Texas, and persistent rains in the Mid-South and Southeast were cited as the reason for reductions. Crop development is reportedly up to three weeks behind schedule because of these problems.

The production difference to the Sparks September estimate is 622,000 bales. The reason for the difference is that most of the Southeastern and Mid-Southern states had smaller expected yields. Listed below are the states with the most significant bale reductions and amount of bales below Sparks’s recent forecast: Arkansas 110,000, North Carolina and Georgia 100,000, Alabama 60,000, California 50,000 and Tennessee 20,000. California’s reduction is apparently based on a reduction in Pima acreage.

As September is the transition month between old and new crop supplies, expectations are for prices to go lower. By month’s end, the difference between spot and “as ginned” offers should be narrowed, or be relinquished altogether. The nearby market in each region of the country is taking direction from their local supply situation. As of Mid-September, most markets are reportedly quiet with the majority of buying interest staying on the sidelines not willing to pay the nearby asking price. With very few offers in the market, sellers don’t feel the need to accept bids. With the exception of Texas, nearby offers and trading have slowly edged lower.

In the Southeast, nearby offers have been pulled at most locations, as demand is reportedly nowhere to be found. As this installment is going to press, concerns about the aftereffects of Hurricane Isabel are still effecting the Southeast by keeping buyers and sellers from doing much trading. The only state in the region showing a nearby offer is North Carolina market, which is ten-dollars below last week’s offer. Supplies are expected to be more plentiful this year in Georgia, which is why OND prices are the lowest in the region.

The Mid-South market has reported relatively strong prices for the past month, yet the pace of declining values is expected to speed up. With gins running in Louisiana and Mississippi, prices will move lower and more buying interest will be attracted by the lower prices. The common complaint is that dairy buyers have yet to feel a great improvement from improved milk prices. Some have suggested that merchants are still carrying some receivables.

Nearby supply tightness is reportedly behind the five-dollar bump up in West Texas spot prices. This is a bit of an anomaly, as this state has the greatest amount of new crop supplies available, with over half a million bales ginned. However, truck availability is limited to ship seed from the south and central areas where new crop supplies are available. Presumably, some ginning pressure will eventually come into the West Texas market, and this should pressure prices somewhat lower.

Far West nearby prices continue to soften. Some of the softness has reportedly caused more substantial buying to take place for the OND timeframe, which hasn’t been the case lately. Supplies are reportedly adequate between new and old crop and there shouldn’t be any supply shortfall. Expectations are for the California market to satisfy this year’s cottonseed demand from railed supplies from the Southeast. Over the next several weeks, Far West prices still could move lower as much as twenty dollars.

COTTONSEED SUSPPLY/DEMAND BALANCESHEET UPDATE: The September USDA Oil Crops Outlook provides a more bullish undertone for new and old crop, which is helped by their ending stocks reduced by 70,000 tons. USDA old crop imports were reduced by 20,000 tons. The crush was reduced 31,000 tons, and the total matches the seasonal total from the US Census crush reports. Another reduction to the disappearance side was exports being scaled back 5,000 tons. These moves were offset by the 86,000-ton addition to the Feed, Seed and Other category. This late season increase is somewhat surprising considering dairy demand and usage is reportedly down across the country. This amount likely is compensation for the poor quality seed earlier in the year that disappeared to feed yards. Total old crop disappearance was raised 50,000 tons.

USDA’s new crop production was lowered 61,000 tons, as could be expected from their cotton crop reduction. The Feed, Seed and Other category was lowered by the same amount, which pegs the category 12,000 tons below the previous year’s level. The crush is unchanged, but represents what would be a historically average amount going to crush. Both old and new crop ending stocks are even at 330,000 tons, and are the lowest since the 99-00 crop year.

The Sparks old crop has the crush scaled back 20,000 tons, while the Feed, Seed and Other category is upped 30,000 tons, this results in a 10,000-ton reduction in ending stocks. This ending stocks amount is greater than what USDA shows, as merchants and end users likely are holding on to some supplies before new crop is made available.

New crop production is raised 150,000 tons, which exceeds USDA’s estimates by 27,000 tons. Strong cottonseed oil premiums and strong soybean oil prices are the rational for the 20,000-ton increase in expected crush. To date, there is still little news about enough sales or exports on the books to raise this number further. If there is evidence of stronger oil bookings or an export program, this number could have more upside potential. The Feed, Seed and Other category is raised 90,000 tons thanks to expected improved supplies compared to last year. New and old crop totals for this category are equal suggesting similar demand can be expected from the feed sector for new crop. Thus far most merchants are doubtful there will be much better demand.