COTTONSEED MARKET: As of mid-June the upward price momentum has stalled as corn and soybean complex futures drifted lower a couple days in a row. Because of the lower futures prices, buyers have withdrawn bids and are willing to hold off on making purchases. Many dairies have kept cottonseed inclusion rates low because other ingredients have been more price competitive than cottonseed. Trading volumes have been light as of mid-month and unless soybean meal futures decline, there is only modest risk for cottonseed prices to drift slightly lower. Compared to the historical price relationship to cash corn, soybean meal or distillers dried grain, cottonseed prices are below the 5year average and competitively priced.
The price rally in Class III Milk futures has helped increase the number of inquiries, but it hasn’t generated enough new cottonseed trading to cause prices to rally. Milk prices will need to continue to rise and hold gains before dairies see the increase in their milk check and feel confident enough to commit to increasing cottonseed usage in rations. Margins should improve some during July and August, and by the 4th quarter margins are projected to become positive. Then demand for cottonseed is apt to increase higher again and bring cottonseed’s price relationship to corn, soybean meal and distillers dried grains closer to their normal levels.
Southeast markets have had only limited trading activity by mid-June as dairy buyer inquiries have resulted in only small volume new crop trades. New crop offers were raised following modest new crop trading in the first half of June. Those with old crop supplies booked have steadily taken delivery, but they haven’t sped up the pace or caused merchants to anticipate they will be back in the market buying adding to their position. Remaining supplies are held in strong hands and those sellers are expected to hold firm on price. Meanwhile, in the Mid-South old crop offers have nudged slightly lower on softer demand. Not much Mid-South gin-run trading has been accomplished.
West Texas nearby prices drifted lower at mid-month as sellers have become more aggressive to put on sales after futures softened. New crop cotton has a favorable start elevating concerns of burdensome supply for those with old crop. New crop trades remain limited, as the focus of the market continues to be on old crop supplies. California prices are steady with last week while supply has been sufficient and hasn’t caused prices to climb. Australian imports are expected to bolster domestic supply during July. Its impact on price will likely be light given the seed is likely already sold to end users. If futures keep climbing there could be more upside price risk.
COTTONSEED BALANCE SHEET: USDA’s balance sheets for both the 2015/16 and 2016/17 crop years are unchanged with last month. The Cottonseed Digest for the 2015/16 crop year has imports raised 15,000 tons. A vessel of Australian cottonseed is scheduled to arrive mid-July. Total cottonseed imports for the August-April timeframe are over 21,000 tons. To date Argentina has been the largest supplier of imports, but it is expected to fall to second place once the ship from Australia arrives. Exports were raised 12,000 tons based on stronger than expected results for April. The largest destination for supply was Saudi Arabia. It imported 8,700 tons in April the largest monthly total for a single country this crop year. It was an increase of 60% compared to what it imported during March. Without data for the final quarter of the crop year, it is only 11,000 tons behind the total it imported last year.
The 2015/16 crush and feed, seed and other category were unchanged. The crush for the final 4 months of the crop year should continue to run 30% less than the 5-year average. The Feed, Seed and Other category is unchanged and using over 60% of supply. Ending stocks are up slightly, but the stocks to use ratio is unchanged and only a 1/10 of a percentage point below the 5-year average.
The Cottonseed Digest production projection for 2016/17 was lowered 69,000 tons on expectations for lower cotton acreage than thought earlier. Informa lowered its planted cotton acres forecast by over 100,000. Southeastern states are expected to have most the declines compared to earlier forecasts. Planted acres are still projected to be over 900,000 acres larger than last year and cottonseed supply will be larger than the previous year.
Given the reduction in 2016/2017 supply, the crush was lowered 50,000 tons yet still would be larger than the current crop year. The outlook for stout soybean oil prices should support cottonseed crushing economics. The Feed, Seed and Other category was lowered 20,000 tons, but this category has the largest year over year increase up over 345,000 tons. Dairy economics are expected to improve in 2017 compared to the current low-margin situation.
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