Cottonseed Market Prices
COTTONSEED MARKET: Informa’s price outlook is for near-term support for cottonseed with greater downside potential as new crops arrives. The near-term upside risk is concentrated in July and August, when the thinness of pre-ginning trades tends to cause increased price volatility and greater price risk. As ginning begins, there may be slightly more crushing capacity than there was at the immediate outset of 2017/18 ginning due to greater operational foresight by processors. Annual crushing capacity will only be very slightly larger in 2018/19, driven almost entirely by the early-season volume gains. With no plans to revive any abandoned crushing plants and no long-term finan-cial reason to build additional plants, it is unlikely 2018/19 crush will contribute much more to cotton-seed demand than it did during 2017/18. Despite this constraint, cottonseed meal prices are ex-pected to decline in new crop, driven lower by its marginal substitutability with cottonseed.
Cottonseed prices in the benchmark Midsouth region rose $11 per ton to $178 in May, the highest levels since September. September’s price strength was formed immediately before ginning a crop that nationally totaled the largest in over a decade. The Midsouth reached a floor around $145 during the ginning-season glut but has been slowly recovering, placing an increasingly normal carry into the forward curve.
Corcoran North prices in California did not participate in the bullishness of other US markets, trading in an historically narrow band of roughly $270 to $280. This was not expected, as California weather was hot and dry during important growing periods last summer. One explanation is the leth-argy in the dairy market, which has been suffering for months from oversupply.
Markets along the West Coast were the first to react to the growing concerns about overly dry conditions in the Southern Plains, losing most or all of their carry and occasionally turning to an in-verse. West Texas markets remain supported around $228, having climbed throughout the market-ing year from the lowest values since February 2007 at $164. The $64 – or 39 percent – rise in values have been driven by strong feed demand from large cattle, hog, and poultry head counts in the US and the prospect of a much smaller-than-expected cottonseed production level in fall 2018. There is no change on the horizon for the serious drought conditions present in the Southern Plains, so near-term price support is still expected.
As new crop arrives, values for October-December deliveries are expected to relax from their current levels. October-December deliveries traded in May around $164 in the Midsouth, $141 in North Carolina, $148 in South Georgia, $278 in California, and $204 in West Texas. More recently, the atypical price firmness in Georgia seems to be abating as delivery periods become more distant, a pos-sible sign that the private negotiations supporting the market this year may expire by 2018/19. During 2017/18 to date, Georgia spot prices which may typically trade a few dollars lower than those of North Carolina have been trading at a $10-to-$15 premium to North Carolina spot values. This unusual pre-mium persists in current spot-market prices, with North Carolina offered around $152 and Georgia of-fered around $170.
COTTONSEED BALANCE SHEET: USDA released its first supply and demand estimates of the year for 2018/19, reflecting an expectation of a 6.145-million-ton cottonseed crop, 1.900-million-ton crush, and a 3.895-million-ton feed, seed, and residual usage. Based on trend-adjusted lint-to-seed ratios of the past several years and cotton production expectations at 22.7 million bales, Informa ex-pects 2018/19 production 750,000 tons higher at 6.895 million tons. Production would come from 12.8 million harvested acres yielding 854 pounds per acre. The risk to this forecast is the Southern Plains drought, which threatens West Texas’s acreage and vegetative health. The 40 percent that Tex-as is expected to contribute to national production may be reduced if precipitation during the key growing periods is not received. Georgia, which is expected to produce 13 percent of the national to-tal, appears safe and may produce a greater proportion. During late May, heavy rains from Subtropi-cal Storm Alberto fell on the Southeast, causing concerns of overly wet conditions for cotton’s second largest producing state. While the southeastern-most states constitute 28 percent of US cotton pro-duction, it is often the case that the hype of damaging heavy rains proves false and that the extra moisture ultimately boosts yields. The high price of cotton, which gained over nine cents per pound in May to easily break above 90 cents, strongly encourages any seed that may have been washed out to be replanted.
USDA sharply reduced its 2017/18 production estimate by 303,000 tons to 6.422 million tons. Strong 2018/19 production would provide a slight, 20,000-ton reduction in ending stocks from 2017/18, which are ex-pected to be 547,000 tons. Both years fea-ture Informa ending stocks projections that are in line with those since 2011/12 after be-ing adjusted for usage. Informa holds more bearish ending stocks projections than does USDA, which explains most of Informa’s new-crop bearishness.
For weekly cottonseed pricing and commentary contact:
Grady Ferguson 901-202-4443 firstname.lastname@example.org
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