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 USDA REPORTS: The running bales ginned total as of December 1st was 15.141 million bales. This is an increase of 3.3 million bales since the last report. Texas progress was the largest at over a million bales pushing totals above the 3-year average for the first time this ginning season. With the exception of Alabama, ginning progress in the Southeast is running close to the average. Meanwhile, the Mid-South is expected to remain above the average. At this point, less than three-fourths of the cotton crop has to be ginned based on projected production.
USDA's all cotton forecast at 21.297 million bales was lowered a mere 2,000 bales according to the December Production Report. The most significant change was a 270,000-bale increase to Georgia's production, as minor reductions were made to states in the Southeast and Mid-South. There was a 58,000-bale increase of upland production, while Pima output was cut back by 60,000 bales. The majority of this reduction came out of California. USDA's cottonseed production was pegged at 7.479 million tons, scaled back by 3,000 tons.
COTTONSEED MARKET: Markets have settled down into a holiday mode with less trading taking place. More gins have finished up, or are indicating they will be winding down in the coming weeks or days. The net effect of this is taking offers out of the market and in the case of the Mid-South the market is firmer. The dairy demand side of the market is quiet, as most end users have nearby needs covered. Considering forward needs, end users are willing to wait before buying as they are still optimistic prices will edge lower.
Southeast markets have only modest changes compared to last month. The biggest change is a couple dollar strength in North Carolina. The market is dealing with improved availability, and the realization that there is more supply in Georgia than earlier anticipated. Typical ginning pressure has settled in and some are hinting at weaker prices in the region before year’s end. With the Holidays nearing, the lack of trucks may limit trading to the feed industry while crushers will have a great opportunity to fill their storage. Prices are expected to edge higher by next month.
In the Mid-South the market has thinned with fewer open nearby offers with more gins done for the year. Spot prices have climbed roughly $10/ton compared to a month ago. Forward offers were raised a couple dollars. The wider spread between the nearby and forward quotes may be over done, as end users are not interested buying forward positions. For the next several weeks, it appears that prices will remain strong making this a sellers’ market.
West Texas bids are a couple dollars lower, yet further downward movement appears to be limited. There is enough buying interest at the current price level, and only if the large-volume buyers exit the market, would prices be at risk to dip lower. The strong carry on the forward offers is expected to keep dairies buying hand-to-mouth. The demand side of the market is an unknown, and if it appears there is less interest usage in dairy rations, then forward prices will edge lower.
Far West markets have softened as rail sellers are interested in turning cars and were willing to trade at lower levels. The nearby market will likely keep a softer tone. California reports there are currently adequate supplies. Supply pipelines have moved up over the past several weeks as rail supplies keep moving into the market, while ginning is taking place. The loss of demand due to high prices is a concern, but sellers are not interested in lowering their offers significantly. There appears to be more risk to the upside as rail rates will be going higher, which is reflected in offers.
COTTONSEED BALANCE SHEET: USDA’s production estimate was scaled back by 3,000 tons. The largest change was 100,000-ton increase to crush, followed by an 80,000-ton reduction to exports. These changes raised total disappearance by 20,000 tons and lowered ending stocks 23,000 tons. This lowers the stocks to use ratio to 6.7%, which is still above the 5-year average of 6.2%.
Informa’s balance sheet had only a 25,000-ton increase to the crush. Increased inquires for cottonseed oil combined with stronger vegetable oil prices and strong pricing for cottonseed meal and hulls have increased the net value of cottonseed for crushers. This may lead oil mills to increasing their crush. Exports are unchanged, as demand from Mexico and Asia is expected to stay stout. Ending stocks are lowered 25,000 tons, bringing the stocks to use ratio only 0.1% above the 5-year average. The expected supply tightness should continue to support price levels. The Feed, Seed and Other category is a wildcard as further reductions to inclusion rates in dairy rations could cause supplies to build creating chances for a bearish price scenario later in 2007. |
