| COTTONSEED MARKET: USDA’s October Crop Production report was released on October 10th and puts all cotton prodcution at 17.559 million bales, which was above the average trade estimate of 17.15 million bales. This is a 620,000 bale increase over USDA’s September Crop Production report and 475,000 over Sparks’s recent estimate. This represents an increase of 4 persent from USDA’s September report. USDA’s twenty-nine pound increase in average yield per acre helped raise production expectations. The only changes to harvested acres was a minor increse of 15,000 acres in Arkansas, and a much anticpated 100,000-acre reduction in Texas. The main changes in production include a 130,000-bale increase for Louisiana. California production was upped 110,000 bales and Mississippi’s was raised 100,000 bales. Texas had the largest decline, down 100,000 bales.
As a result of these changes, USDA’s cottonseed production shot up 223,000 tons to 6.446 million tons. At first glance, higher production appears to be bearish. Nonetheless, this same Crop Report shows the lowest soybean production in six years. This short soybean crop may help override any drastic downside price potential for cottonseed.
The main factor supporting price is the slower than average harvest and ginning. The most recent USDA Ginnings report shows over two million bales have been ginned as of October 1, 2003. Progress is ahead of last year’s pace, yet still behind the three-year average by 330,000 bales. Compared to the report two weeks ago, ginning is three times behind the three-year average. The main difference is that Southeast and Delta states have picked up the tempo, but the Mid-Southern states have fallen behind their regular rate.
Rains in many of these states have thwarted producers’ intentions to defoliate, which only sets back progress that much more. The recent rains should not be problematic enough to raise seed quality concerns, as was the case a year ago. There has been little news on tropical storms for the past few weeks. At mid-month, a new tropical storm has developed in the Caribbean. It is too early to judge the outcome, but it appears to be a non-issue. With only six weeks left in the official hurricane season, it would appear that the crop fared well in regards to tropical storms. As far as storms go with implications for crop supplies, early hail and thunderstorms in Texas, and the continuous rain clouds over the Mid-South and Southeast may have been the most detrimental weather factor for this year’s crop.
With only a little ginning going on, and plenty of inquires coming in to gins, it is only natural that prices will move higher. Gins will play the waiting game with selling seed as it has worked to their advantage thus far. For the first time in recent years, gins are in a powerful selling position. They are able to let the feed and crushers bid up prices and wait for prices to move their way. With each passing week, it appears the chances for gin pressure to lower prices are less likely. The next ginning report for mid-month probably won’t show much progress in the running bale total.
This slow movement of seed apparently exposed some short positions in the Texas and California market. The Texas market was dealing with shortcoming with the accessibility of trucks and the quality of the new crop that was made available to the market. California had prices shoot up on a count of shorter than expected supplies compounded by a slower than expected start of ginning. Once rail supplies moved into the state prices settled down. It appears that there is still little forward coverage from the end user level, which means there will be more buying week in and out. This fact may result in some choppy pricing provided there are not any problems with the flow of supplies.
The cottonseed market typically has plenty of supplies to move in the market and gins are pressed to move supplies and are inclined to accept bids to keep supplies moving. However, this year the slow movement of seed has gins in a much more advantageous selling position. Oil crushers are enjoying stout net values for a ton of cottonseed. This is making crushers more aggressive buyers, and causing prices to move higher. Feed merchants are concerned that prices are getting too high for dairy end users, and mentioning that buyers are cautious and only buying hand-to-mouth.
The graph below shows that current net cottonseed values for Mid-South crushers is much stronger than the five-year average. Also it must be noted that the fundamental strength of the net value of cottonseed in the 30th week is closely associated with the increase in soybean oil prices. Cottonseed hull values are exceptionally strong, but cottonseed meal relative to soybean meal is rather undervalued and could contribute more to the overall net value of cottonseed. It appears that the strong oil market will be a little different factor than what the market has seen in recent years and it will likely keep seed prices stronger than past history.
|
