Strong demand for oilseeds puts pressure on cottonseed supply
CARY, N.C. (November 9, 2006) – Spared from hurricanes and defiant of inclement weather, the 2006 cotton crop fared much better than expected. Today’s cotton production report from USDA shows total upland cotton estimated at 20.5 million bales, an increase of 3 percent over the October estimate, but still significantly less than the 23.3 million bales produced in 2005.
“For all the dry weather in West Texas, the state is still producing 5.7 million bales,” notes Dr. John Robinson, associate professor and Extension economist, cotton marketing, Texas A&M University. “We’re looking at a bigger crop in 2006, but still not as big as the last two record years.”
For dairy producers, the healthy U.S. cotton crop means an ample amount of high quality cottonseed will be produced – about 7.5 million tons, compared to 8.2 million tons in 2005 – but may not be available at low prices. A booming oilseed market is anticipated to increase demand for cottonseed, pitting crushers against dairy producers, and consequently driving up prices for whole fuzzy cottonseed.
According to Dr. O.A. Cleveland, a market analyst for CottonExperts.com, the explosion in biomass energy and ethanol markets is increasing demand for oilseeds. “With current high grain prices, we’ll continue to see strong demand for cottonseed among crushers.”
Larry Johnson, chief operating manager, Cottonseed, LLC, concurs: “Cottonseed prices will hinge on corn and bean prices. If beans stay high, crushers’ ability to pay up for cottonseed will be increased.”
He adds that the cottonseed export business is strong due to the lack of seed coming out of Australia, especially for delivery into the Asian market.
“So many factors add up to bullish cottonseed,” he says. “We’re coming into the January forward period with higher grain prices, so dairies will not pull cottonseed out of the ration as fast because alternative feed prices are higher. Demand will stay relatively strong, meaning a low potential for carryover, and you have a potentially smaller crop coming at you again in 2007.”
If grain prices stay high, producers will favor corn and soybean production to cotton in 2007, further dampening the U.S. supply – but not significantly, Cleveland says.
“Only the more marginal land in the U.S. cotton program – about 1 to 1.5 million acres of a total of 15 million acres – will be shifted to corn or soybeans from cotton.”
Johnson, noting a $25-30 spread between November-December and January-August cottonseed prices, says dairy producers should think seriously about ways to buy and store as much cottonseed as possible right now.
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