The interesting part of this “perfect storm” phenomenon is what was happening in the barley market was replicating itself in the wheat, grain sorghum and, of course, corn markets.
From an acreage standpoint, the soy, and dry edible bean markets, along with cotton saw the most significant acreage declines, but acreage and yield declines certainly didn’t dampen the market’s enthusiasm for beans and cottonseed for feed.
2008: Another wild ride?
For producers, market analysts and customers alike, any thoughts of market stability being ushered in with the New Year, were quickly brushed aside. Grain prices continued to show impressive gains fueled by big orders early in the marketing cycle.
“The overseas customers are making adjustments to their marketing plans so they won’t be caught short, and they’re being quite aggressive in their pursuit of U.S. soybeans,” says Brent Babb, director, Program Development and Communications, U.S. Soybean Export Council. “We had a large carryover supply heading into 2007. That won’t be the case for this year and will certainly be lower yet heading into 2009.”
Additionally, global demand for feed stock grains will remain high because of our nation’s ability to provide the marketplace with a reliable supply of high quality product. So there’s really no reason to sense any weakening in market position for 2008.
As John Hoffman points out, market turbulence and acreage shifts aren’t the exclusive property of the United States.
“South American producers are expanding their available acreage to accommodate demand for biofuels feedstocks just like we are,” Hoffman notes. “So they face many of the same challenges with meeting demands for a growing domestic feed industry and satisfying the needs of their trade partners.
“Because our ag economies are mutually dependent upon demand for our products, when we see an opportunity worth seizing, you can bet they do too. They have the ability to move quickly on those opportunities as well,” Hoffman says.
Equally as unsettled is the cottonseed market as large shifts in acreage — particularly in the Mid-South Delta producing region — have shrunk the supply of seed available for feed by nearly a half-million tons per year since 2005 to a projected level of 3.3 million tons in 2008. Seed available for the crush (oil production) is also lower over the same period.
“Ours is a story of simple supply and demand,” says Tom Wedegaertner, director, cottonseed research & marketing, Cotton Incorporated. “The demand for corn and soybeans is being met by a supply of acreage that once grew cotton.
“Analysts agree that the trend will continue in 2008 as we can expect acreage to dip from 10.8 million acres last year to estimates ranging from 9.5 to 9.8 million acres for this year.”
Despite an eroding acreage base and lint prices which hover around the $0.70/lb. mark, Wedegaertner reports of great optimism in the industry’s ranks. Optimism fueled mainly by record prices for cottonseed as feed and seed oil.
“Cottonseed prices have strengthened considerably since last summer, even reaching in some instances more than $380/ton in the dairy regions of Washington,” he says. “Add to that the growing crush values of cottonseed oil which in some markets has eclipsed the price received for lint, and producers are capturing more value out of their cottonseed than ever before.”
While dairy producers are certainly less than thrilled by the skyrocketing costs for cottonseed once again, the market has set the price and it looks as though it has the potential to move even further.
“I used to think that the $200/ton mark was the ‘magic number’ for price elasticity in this market,” says Wedegaertner. “Then we started seeing that number move to $250, $275 and now much more than $300. I’m wondering now if soon we’ll see a number beginning with a 4 pretty soon.
“Cottonseed has a place in the dairy producer’s ration because of its proven performance, but it’s like anything else the end users will pay more than they have in the past whether it’s cottonseed, corn, soy meal or other sources,” he says.