COTTONSEED MARKET: Lackluster end user buying interest related to poor dairy producer margins continues to keep a bearish tone in the market during July. Prices have been pressured lower buy cottonseed holders attempting to generate buying interest. Recent declines in corn and soybean meal futures related to strong crop condition ratings has keep buyers out of the market in anticipation of buying opportunities with even lower prices.
The condition of the cotton crop remains mostly favorable. There was an decline to the cotton crop index early in the month, but stayed a half point above the 2014’s rating. Timely rains during the next several more weeks will be necessary to insure that Texas makes another above average crop. Heat and spotty rains are raising concerns that if there isn’t a good rain by the first week of August yield potential will need to be lowered. Conditions in the Southern Valley are better than last year and by the end of July new crop supply should be flowing though distribution channels.
The arrival of this new crop supply is prompting sellers to step up sales. They want to make sure that old crop inventories are sold before new crop supply pressures nearby prices lower. Given the lack of dairy interest and there being more dairies have discontinued using cottonseed or cut way back on usage, it will be difficult for cottonseed prices to rebound. Cottonseed prices haven’t softened enough to get dairies to bring back or increase cottonseed in rations. There are abundant and affordable supplies of alfalfa. Additionally, dairies are not willing to book very far forward because of the current volatile situation with corn and soybean futures drifting lower during the last half of July, which is keeping downward pressure on cottonseed prices.
COTTONSEED BALANCE SHEET: USDA’s 2015/16 balance sheet is unchanged. Their 2016/17 crop year balance sheet had production raised 155,000 tons. The Feed, Seed and Other category was increased 120,000 tons. The ending stocks were raised 35,000 tons the remainder of the production increases.
The Cottonseed Digest’s 2015/16 crop year has imports lowered 20,000 tons as the vessel of Australian cottonseed has been pushed back several weeks and should land in the middle to last half of August. Slower than expected oil mill runtimes are reason for the 20,000-ton reduction to the 2015/16 crush. Exports were upped 11,000 tons due to strong exports during May. The Feed, Seed and Other category was lowered 11,000 tons. These changes offset each other leaving ending stock unchanged with last month.
For 2016/17 production was raised 304,000 tons on the outlook for increased cotton acres and favorable crop conditions. This is over 100,000 tons larger than the 5-year average. If abandonment is below average it is possible that production will be further increased. Imports were raised 20,000 tons since the vessel of Australian cottonseed is expected to land in August. Total supply was raised 324,000 tons.
Given the increase in supply, exports were modestly raised 25,000 tons. There are concerns that the strength in the US dollar may continue to hamper buying interest, but increased supply suggests there will be supply to move to export channels. The Feed, Seed and Other category was raised 300,000 tons. Improvements in dairy economics at the end of 2016 and into 2017 should increase cottonseed usage in rations. The stocks to use ratio remains steady at 8.9% for both years, a tenth of a percent below the 5-year average.
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