Cottonseed Market Prices
COTTONSEED MARKET: Throughout July, the market focused on 2018/19 cotton production forecasts, the weather situations across the Midwest and Southern Plains, and the decline of compet-ing feed prices. Since the last monthly balance sheet forecasts, projected 2018/19 cottonseed pro-duction has been reduced roughly 350,000 tons in both Informa Economics IEG’s and USDA’s view. While USDA expects the reduced production to be completely offset by reductions to usage, Informa expects usage to fall less, resulting in a roughly 30,000-ton increase to 2018/19 carryout at 499,000 tons. This causes a mild increase in Informa’s expected 2018/19 cottonseed price projections com-pared to its price forecasts in June.
From June to July, North Carolina decreased five percent and West Texas increased 2.5 per-cent, though Memphis North and California remained essentially the same, declining 0.8 percent. Compared to the year prior, cottonseed prices in July were down $17 per ton in North Carolina, up $32 in West Texas, down $15 in Memphis, and down $4 in California. In the several months ahead, a decline in prices is expected. As ginning gets underway throughout the US, cottonseed production risk premium will dissipate, lowering prices as is seasonally typical. Additionally, USDA is calling for cottonseed production at 5.800 million tons, the largest since 2010 aside from the massive 2017/18 estimated production. Informa believes USDA’s 2018/19 production projection is pessimistic given the critical precipitation period has just begun. USDA’s reduction from last year’s large crop may sup-port market prices until either an increase is made to its official projections (bearish) or August-October weather causes reductions to actual production (bullish).
In a major development, US tariffs on $34 billion worth of Chinese goods were put into place July 6, realizing the market fears from the proposals during April-June. Futures prices of feeds com-peting with cottonseed had already fallen from those fears, and June 6 exhibited gains in corn, soy-beans, and soybean meal that have endured to the present. This year, high soybean crush margins and volumes have led to high soybean meal availability, which is expected to continue for months and reduce cottonseed meal’s competitiveness. The Trump Administration is now proposing increas-ing tariffs from 10 percent to 25 percent on an additional $200 billion worth of Chinese goods. On net, the tariffs will pressure prices of competing feeds and thus prices of cottonseed.
The Midwest exhibits drier-than-normal weather patterns across the Corn Belt, and the South-ern Plains continues its drought. The abundance of rains in the Southeast – once a source of complaint – are now largely being ignored, though heavy rains tend to be much more of a benefit to yields than a detriment. If one field floods, the rain typically benefits the surrounding fields, and the net re-sult boosts aggregate production. The scarcity of moisture in West Texas is attracting much more at-tention as a factor of supply and prices as Texas tends to account for 40 percent of US cotton produc-tion. NOAA’s Drought Monitor showed a slight shrinking of area affected by the drought in West Tex-as earlier in the month of July, but the Drought Monitor on July 24 showed the intensity becoming se-vere again in many areas that were improving earlier in the month. Rains across the West Texas region have been scarce, but the erratic moisture has allowed the stressed crop to struggle along as it enters the critical development period. Timely adequate moisture during August-October will produce better yields than the market is expecting.
COTTONSEED BALANCE SHEET: USDA released its Crop Production and WASDE reports on July 12, reporting a reduction of the cotton crop by one million bales due to an increase in its estimated 2018/19 acreage abandonment. The subsequent 350,000-ton reduction to 2018/19 cottonseed pro-duction is a supportive factor to cottonseed price projections, though Informa has withheld greater reductions to cotton and cottonseed production expectations given the historical disconnect between pre-August rainfall and ultimate crop size.
Whereas USDA maintained its 2018/19 ending stocks projections from June to July by lowering feed, seed, and residual forecasts by the same amount it reduced production, Informa believes reduc-tions to usage will be spread more evenly among the usage sectors. Informa reduced crush forecasts by 50,000 tons; reduced exports by 25,000 tons; and reduced feed, seed, and residual by 225,000 tons. (Informa increased 2018/19 carryin by 25,000 tons from a reduction to 2017/18 crush.) In total, Informa’s reductions to expected usage were roughly 30,000 tons lighter than its reductions to ex-pected production, causing a 30,000-ton decline in projected 2018/19 ending stocks. Those ending stocks are now expected to be approximately 500,000 tons, which if realized would be the largest since 2010/11 aside from the 572,000-ton 2017/18 estimate. After accounting for Informa’s higher-than-normal usage pro-jections however, 2018/19 is expected to be a typical, low-priced marketing year. Cot-tonseed will likely trade near the price floor cre-ated by the competing feeds markets, which themselves may be lower than in recent years due to US’ trade wars.
For weekly cottonseed pricing and commentary contact:
Grady Ferguson 901-202-4443 firstname.lastname@example.org
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