COTTON GINNING REPORT: The running bales ginned total was 12.257 million bales as of February 1st. Since the last report from Mid-January, 518,650 bales were ginned while the 3-year average progress at this time of year is 454,983 bales. The pace of ginning was hampered by the slow start to harvest related to wet weather. Total ginning progress is more than 3 million bales behind the 3-year average. Because of the smaller cotton crop in all states, except Texas and Oklahoma, progress will remain below the average level.
COTTONSEED MARKET: Many dairy end users are limiting cottonseed usage because their margins are marginal to negative and are using price competitive alternatives. As of mid-February there has been mostly small volume trading done with some resellers covering requirements or changing positions between the Southeast and Southwest that may have better profits due to price spreads and logistics.
Trading during February has been slow. Gins are waiting to put on new sales and are reluctant to sell at lower price levels than during the ginning season. Time is still on the side of the gins as they are not pressed to sell, but the supply will need to find its way to market and the concerns about quality in the Southeast may cause some gins to move material before it could become reason for a quality claim. Some gins will have to put on sales in coming weeks as they need the cash flow. Currently the lack of dairy demand suggests there is greater risk for prices to continue drifting lower for the next several weeks until cottonseed reaches a competitively priced level.
The lack of end user buying interest and abundant competing feed ingredients continues to be the main focus of the market. Since dairy buyers appear to have moved on to other ingredients the next level of potential price support would be the crushing industry. Given the shaky crushing economics for crushers, there is the possibility that prices will continue to drift lower before dairy buying interest is revived provided milk prices improve by the middle of this year. The relative price of cottonseed to cash corn and distillers dried grains remains above the 5-year average level. Therefore, cottonseed is not competitive in dairy rations and there will be more downward price risk.
COTTONSEED BALANCES SHEET: The USDA balance sheet was unchanged from last month. The Cottonseed Digest balance sheet increased imports 5,000 tons. During the first 5 months of the crop year, imports are already above 18,000 tons. There is modest risk for a slowdown to the current pace of imports given the recent decline in cottonseed price. Production was left unchanged with last month. Supplies appear to be ample given mediocre demand.
The cottonseed crush was raised 100,000 tons, but it still remains below year ago levels. The softening of cottonseed prices raises the possibility of oil mills increasing their crush thanks to the lower input cost of cottonseed. However, the net product value for Mid-South crushers has been held up by stronger than normal cottonseed oil, meal, and hull prices. These stout prices hold the possibility that crushing economics have downside risk in coming months which could result in cottonseed prices drifting lower absent the return of dairy buyers.
The Feed, Seed and Other category was lowered 100,000 tons. Poor dairy producer economics have resulted in a slowdown in buying as cottonseed has been removed in dairy rations or inclusion rates were significantly lowered. This has taken the bulk of nearby buying interest out of the market causing cottonseed prices to drop in order to attract new demand. It may take a couple months of weak prices before Class III milk prices return to levels that should provide producers the economic incentive to include or increase cottonseed usage in rations. Ending stocks are unchanged, but if end user demand does not improve in coming months, the ending stocks will need to be adjusted higher..
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