COTTONSEED MARKET: Trading has become less active during the middle of March com-pared with the first week of the month. Cottonseed prices are edging higher on mostly reseller to re-seller trading with underlying strength from grain prices. Gins are keeping to the sidelines and holding out for higher prices. The recent strength in grain futures is seen as supportive for cottonseed prices. For the time being it looks like the upward price momentum will be able to continue for the next several weeks.
In the Southeast, nearby markets are quiet and what has traded is only on small volumes. Dairy demand from the Northeast remains lackluster and this is keeping a lid on prices. It is common for the market to be quiet as end users are working through contracted supply. There has been re-newed inquires for new crop, but nothing has traded.
The Memphis North price this year has drifted lower since November. This goes against the typical seasonality of firming prices once the majority of ginning has been completed. The last time the low for the crop year occurred during March was in 2008/09. In that year, autumn prices were supported by strong grain prices and a substantial drop in cottonseed supply. Cottonseed production for the 2008/09 crop year was down 1.314 million tons compared to the previous year. This year’s cottonseed production drop in production is projected to be 1.462 million tons from the year ago. There are plenty of similarities between the two crop years. Milk prices in early 2009 were below av-erage and fell under $10/cwt from May through July. Given the similarities between the two crop years, it appears that the market could be close to a bottom. However, competing feed ingredients are apt to soften this summer limiting the upside potential.
West Texas nearby trading remains limited as dairies are dealing with narrow margins. There has been a bit more new crop selling interest from resellers and a handful of gins, which are behind firmer quotes. Offer and bids are getting close, but no trades were reported. Gins are holding out for higher prices and dairies are expected to continue buying hand to mouth.
In the Far West, prices have firmed up since ginning in the region is completed. California rail offers held steady, but nearby truck supplies have traded higher recently. Lackluster dairy demand is still a concern for traders and this will likely keep usage below average for the next couple months. Nonetheless, there continues to be enough buying to support higher prices.
This year’s cotton plantings are a major question that has been looming over the market. In the Southeast, there are concerns that cotton acreage might be lost to soybeans or peanuts. The Mid-South has abundant moisture, but the strength in soybean prices could mean that there will be fewer cotton acres than last year. West Texas is the perennial wildcard in the market regarding plantings and weather. A modest drop off in cotton acres can be expected as other crops look to be more prof-itable. Much of West Texas is still under a Palmer Drought Index between Extreme and Moderate. Availability of ground water for irrigation is a concern absent additional rains in the region. California is dry and if this doesn’t change it could lead to less cotton acreage as well. Crop development issues could provide some upward lift for cottonseed prices this summer, but the weight of unsold supply will likely limit the upside potential.
COTTONSEED BALANCE SHEET: USDA’s balance sheet was left unchanged from last month. Total supply remains roughly 4% below the 5-year average. Meanwhile USDA’s crush is be-low the average by just less than 1%. Only the Feed, Seed and Other category is larger than the 5-year average up nearly 4%. Given tough economic conditions for dairies, it is difficult to expect that usage will be above the 5-year average. Price levels during the first part of this crop year should have reduced dairy usage. Without a significant drop off in cottonseed prices, inclusion rates are not ex-pected to return to levels seen a year ago.
The Cottonseed Digest balance sheet had imports lowered 20,000 tons as production in Aus-tralia may not be as large. Asian markets are a wildcard and could take more supply. Dairies do not appear to be aggressive enough in their usage to require more imports. However, if cottonseed prices begin to soften and milk prices improve then imports might need to be revisited and adjusted hihger. The Feed, Seed and Other category was lowered 60,000 tons. Dairy buying continues to be lackluster and it looks like improved availability of other feed ingredients will limit cottonseed usage. Ending stocks were raised 40,000 tons, but still remain 23,000 tons below last year’s level. For the time being, it appears there will be sufficient supply of cottonseed.
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