Cottonseed Prices Add To Crop’s Revenue Stream
“About a year ago when vegetable oil and protein meal prices started moving up, we saw the combined product prices for cottonseed move higher than they have been in past years,” he says.
As for the cottonseed supply and demand landscape, first consider that 2008 will produce a shorter crop because cotton acreage is down. The latest projection for cottonseed production for 2008-09 is about 4.7 million tons, down from 6.6 million last year. After adding in the carryover, there will be close to 1.5 million tons less seed than was available a year ago.
“Supply and demand is actually going to push cottonseed prices up,” Morgan notes.
A $14 Million Bump For One Cent?
The most lucrative cottonseed by-product market today is cottonseed oil with prices up 50 to 60 cents per pound – more than double the five-year average. From a total revenue standpoint, crushing seed makes the most sense because for the first time in over 10 years more seed will be crushed than will be fed to dairy cattle.
“The economics on the crushing side are turning the demand around from more seed going to dairies to more seed going to the crushing mills,” Morgan says. “Cottonseed oil is naturally stable, and so it does not require hydrogenation – the process that produces trans-fatty acids. We will be taking advantage of the continuing trend of food manufacturers and foodservice operators who produce and serve trans-fat free foods.”
To put things in perspective moneywise, he points out that “a one-cent increase in the price of cottonseed oil can boost the value of a ton of seed by $3.” Thus, if U.S. farmers produce 4.7 million tons of seed this year and realize just that one-cent increase, the added value to the cottonseed crop would be $14 million.
Where Farmers Fit In
Traditionally, when the price per ton was lower, gins considered cottonseed as payment to cover ginning costs. Today’s higher prices are making a difference in how cottonseed is viewed.
“Gins everywhere, and particularly in the Mid-South, are re-thinking their marketing process in order to compete for cotton acreage,” says Tim Price, Southern Cotton Ginners Association executive vice president. “A number of them will be working with new or improved contracts that reflect the value of the cottonseed back to the farmer in terms of gin refunds.”
Morgan also points out that crushing mills compete for the gin’s business, and product prices usually set the floor for seed prices. Gins will try to maximize their revenues, which will determine how they might offset ginning costs or how much more they can return to their members via rebate checks if they are cooperatively owned.
Another consideration now that cottonseed has risen in value is producing, harvesting and storing a high quality marketable product.
“We clearly have to think about the production, marketing and storage streams for cottonseed, much as we would the production, marketing and storage of cotton lint,” Price says. “The total value from an acre of cotton has to be thought of more than just the traditional comparison between the price of a pound of lint and the price of a bushel of another competing crop.
“We’ve had some amazing markets for cottonseed, which now has us thinking about how to maximize the quality and volume of cottonseed as part of the revenue stream and future sustainability of cotton production.”
Contact Carroll Smith
at (901) 767-4020 or firstname.lastname@example.org.