Spared from hurricanes and defiant of inclement weather, the 2006 cotton crop fared much better than expected. USDA's Nov. 9 crop production report shows total upland cotton estimated at 20.5 million bales, an increase of 3 percent over the October estimate, but still significantly less than the 23.3 million bales produced in 2005.
“For all the dry weather in west Texas, the state is still producing 5.7 million bales,” notes John Robinson, associate professor and Extension economist, cotton marketing, Texas A&M University. “We're looking at a bigger crop in 2006, but still not as big as the last two record years.”
For dairy producers, the healthy U.S. cotton crop means an ample amount of high quality cottonseed will be produced — about 7.5 million tons, compared to 8.2 million tons in 2005 — but it may not be available at low prices. A booming oilseed market is anticipated to increase demand for cottonseed, pitting crushers against dairy producers, and consequently driving up prices for whole fuzzy cottonseed.
According to O.A. Cleveland, a market analyst for CottonExperts.com, the explosion in biomass energy and ethanol markets is increasing demand for oilseeds. “With current high grain prices, we'll continue to see strong demand for cottonseed among crushers.”
Larry Johnson, chief operating manager, Cottonseed, LLC, concurs: “Cottonseed prices will hinge on corn and bean prices. If beans stay high, crushers' ability to pay up for cottonseed will be increased.”
He adds that the cottonseed export business is strong due to the lack of seed from Australia, especially for delivery into the Asian market.
“So many factors add up to bullish cottonseed,” he says. “We're coming into the January forward period with higher grain prices, so dairies will not pull cottonseed out of the ration as fast because alternative feed prices are higher. Demand will stay relatively strong, meaning a low potential for carryover, and you have a potentially smaller crop coming at you again in 2007.”
If grain prices stay high, producers will favor corn and soybean production to cotton in 2007, further dampening the U.S. supplies — but not significantly, Cleveland says.
“Only the more marginal land in the U.S. cotton program — about 1 million to 1.5 million acres of a total of 15 million acres — will be shifted to corn or soybeans from cotton.”
Johnson, noting a $25 to $30 spread between November-December and January-August cottonseed prices, says dairy producers should think seriously about ways to buy and store as much cottonseed as possible right now.
“The cotton crop is relatively large, and some harvest pressure still exists,” he says. “If dairies have the ability to buy now and store a year's worth of their needs on farm, they may be able to significantly average down their pricing.”
When asked whether producers should wait and lock in on January 2007 and forward prices, Johnson says it depends entirely on their viewpoint of whether the grain market will hold. “If they feel demand for grain will remain strong, then they should book their cottonseed needs now; if they don't feel it will hold, then they may want to wait.”
According to the Nov. 4, 2006, issue of Bill Gary's Price Perceptions, a twice- monthly report published by Commodity Information Systems, the global grain situation will become “nearly impossibly tight” by the end of 2008.
“Based on usage trends, it will be nearly impossible to expand grain production enough to meet global usage during the 2007-08 season. With global population expanding, incomes increasing and use of biofuels mandated, 2007-08 points to another record rate of grain usage,” the report says.
Cottonseed is an excellent and economical source of fiber, protein and energy. Typical rations include up to 15 percent cottonseed on a dry matter basis. For more information on cottonseed, including reports on market conditions, feeding information and a list of suppliers, visit www.cottoninc.com.