COTTONSEED MARKET: There has been upward prices momentum based on rallying corn and soybean futures. Markets have been slightly quieter since prices have edged higher during the first half of May. The buying that has been done is primarily coming from resellers. The majority of trading is focused on the nearby suggesting any short positions are driving sales and supporting prices.
California prices continue to edge higher as there has been follow through buying from a variety of merchants after there were some logistical short comings which tightened up supply at the end of April and beginning of May. The price actions suggest that others have jumped on board to insure they have sufficient supply to meet their needs. Forward contracts for the summer have garnered only limited buying interest from dairies as they are concerned about profitability in coming months. Meanwhile, other feed ingredient prices in California have firmed following the rally in grain futures. The relative price of whole cottonseed in California to distillers dried grains is 31 percentage points above its 3-year average suggesting cottonseed is overvalued compared to the historical relationship. The Mid-South market has a similar price relationship to distillers dried grains.
Mid-South nearby traded up $15/ton compared to offers last month given the tight supply situation in this thinly traded market. The price is higher than in Texas which prevents supplies from trading to the Far West. For the time being, sellers are content holding price firm and selling to local users. Prices are expected to remain firm for the next couple months due to last year’s small crop and tighter than normal supply. New crop buying and selling interest remains light and it may take the cotton crop to emerge before sellers will start making new crop sales.
West Texas nearby prices climbed a couple dollars higher on the increases from price strength in the Far West market, but reported trades are only on small volumes. The price increase should bring more willing sellers to market since many gins with cottonseed holdings were waiting for higher prices before coming to market. The West Texas market continues to be most competitive compared to historical price relationships. The light demand situation related to poor dairy producer economics is preventing the West Texas price from moving higher.
Southeast markets have been quiet in May because end users are resisting price increases. Delivered markets had offers increase based on the upward price momentum from other neighboring cottonseed markets. Without evidence of follow through trading coming from end users, prices are at risk to stall and rollback.
COTTONSEED BALANCE SHEET: The USDA’s balance sheet for 2015/16 had production lowered 110,000 tons compared to last month while the lint-to-seed ratio is at a new historical low. The ratio has trended lower for the past 4 years. Exports were raised 40,000 tons and the Feed, Seed and Other category dropped 150,000 tons offsetting the other changes and leaving ending stocks unchanged with last month. Ending stocks are 60,000 tons less than the 5-year average.
This is the first month of a balance sheet for the 2016/17 crop year. USDA’s production is projected to be 4.975 million tons, which would be an increase of 23% compared to this crop year. The disappearance side of the balance sheet is higher than the 2015/16 crop year for all categories. The crush is raised to 1.9 million tons which would match the crush of 2014/15 crop year. The Feed, Seed, and Other category is 4.952 million tons. Exports expectations are up by 150,000 tons compared to the current year’s projection. Ending stocks come to 415,000 tons which are 20,000 tons below the 5-year average.
Cottonseed production numbers don’t change much after May for the current crop year, so the Cottonseed Digest is adopting USDA’s production for the 2015/16 crop year. This is a 102,000-ton decline from last month. The lower lint-to-seed ratio is a trend that is driven by improved genetics for lint production. Imports are unchanged as over 20,000 tons have been imported through March. The crush was lowered 20,000 tons as crush economics have worsened with the recent increases in seed prices. Exports were raised 18,000 tons on steady shipment of supply. The Feed, Seed and Other category was lowered 55,000 tons as dairy economics remain weak. Ending stocks were lowered 25,000 tons to the lowest level since the 2009/10 crop year.
For the 2016/17 crop year production is higher as planted acres are up over 900,000 acres and harvest acres are forecast to exceed last year by over 600,000 acres. The crush was raised above the current crop year due to increased cottonseed supply and the likelihood for improved crushing economics if soybean stocks will be a low as the USDA projected in their May WASDE report. Exports were raised, but remain 24,000 tons below the 5-year average. A weaker dollar and favorable weather at harvest could result in more exports. The Feed, Seed and Other category was raised making roughly 55% of total supply. This demand sector will continue to be the largest and most important determining factor for price. The outlook for improved dairy margins at the end of this year suggests that cottonseed inclusion rates in diets could rise. Ending stocks are projected within 2,000 tons of the 5-year average.
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