Cotton Marketing News: Pre-Harvest Outlook & Hurricane Florence Impacts

Cotton Marketing News: Pre-Harvest Outlook & Hurricane Florence Impacts

Don Shurley, Professor Emeritus of Cotton Economics

Our thoughts and prayers go out to everyone, but especially for our fellow farmers and cotton producers in North Carolina, South Carolina, and Virginia.

The very latest projected path of the storm (as of this morning), takes it along the North Carolina coast then inland across virtually all of South Carolina.  This storm is slow moving—meaning that it will dump a lot of rain, and there will be high winds for several days.


Accumulated rainfall from this storm is expected to total 12-18 inches or much more in some areas and accompanied by high winds.  Most areas, even if not in the most heavily impacted area, are expected to receive totals of 5-12 inches of rainfall.

It looks like Georgia may be fortunate to escape the brunt of any major impact on crop production:

I am relieved to say that with the current path of the storm, impacts on most of Georgia are now expected to be minimal. Eastern counties will still experience some wind gusts from the storm, which could cause isolated power outages, but they are expected to be less than 40 mph. Rainfall will be confined to the northeastern part of the state and should amount to less than two inches in all. The rest of the state should see no rain at all from the storm, which is not good for areas that are currently suffering from dry conditions. The southern half of Georgia should not experience any significant impacts from the storm, and northern Georgia’s impacts will be small and limited in space and time.”   Pam Knox, UGA Agricultural Climatologist.  September 14, 2018

North Carolina, South Carolina, and Virginia were forecasted to produce a total of 1.58 million bales of cotton this year.  Recognizing the location of most cotton production in these states (based on 2017 county production), it appears that South Carolina cotton will be subject to heavy rainfall as well as North Carolina.  Virginia will receive less and east Georgia mostly 1-2 inches or less.


As we experienced with Irma here in Georgia last year, the damage from sustained high wind can be significant—resulting not only in lost lint from open bolls, but also twisted and lodged plants difficult to harvest.  As of Sept 9, the NC crop was 43% open, SC 28%, and VA 37%.

Market Update

The visions of a return to 90-cent cotton appear to be fading.  The good news is that the market is clearly showing signs of good support at roughly 82 cents.  Support is a good thing; but prices (Dec futures) have struggled to clear a hurdle at 85 cents—we’ll first have to clear 85, if we hope to reach 90.  Producers looking for an opportunity to add on to earlier sales, support is good but a rally is even better.


USDA’s September estimates raised the US crop to 19.68 million bales—440,000 bales higher than the August estimate.  The 2018 forecast yield was lowered just a bit, but acres planted was raised 520,000 acres.

The US crop is still a big unknown.  This is one thing giving us support.  Texas, as of Sept 9, is 62% poor to very poor condition.  The September USDA numbers lowered the Texas state average yield to a projected 694 lbs/acre—down from 726, but added roughly 200,00 more acres to be harvested.

US exports projected for the 2018 crop year were raised 200,000 bales from 15.5 million bales to 15.7 million.  World demand is strong but there is some skepticism within industry about whether or not USDA is over-reaching a bit on its export number.  2017 crop year exports were 15.85 million bales.

Compared to the August estimates, China’s production for this season was raised 1 million bales; India production was unchanged; Australia production was cut 550,000 bales and Brazil raised ½ million bales; Chinese imports and use were unchanged; Bangladesh and Vietnam imports were unchanged.

Although prices appear to have good support, producers should be 50% sold or better at this point.  The current level of prices (in the 82 cent neighborhood) is disappointing compared to where we have been.  But if you’re not already at the 50% level, you also need to think about guarding against this market going to less than 80 cents and you being at-risk with most of your crop.

On the other hand, if you are already 50% or more priced, rallies to the 85 cent area could be a good opportunity to add further to sales—unless you want to take the risk of holding out for 85 to 90—but then realizing  you’re also taking the risk that the current level of support will hold.

 

 

 

Cotton Marketing News:  Extraneous Matter—The Plastics Issue

Cotton Marketing News: Extraneous Matter—The Plastics Issue

Don Shurley, Professor Emeritus of Cotton Economics

Contamination from plastics is a hot-button topic in the US cotton industry right now.  It should be.  It’s a serious problem.  Major culprits include plastic wrap from round modules, shopping bags from stores, and plastic used as ground cover in the production of previous crops in a field.

Cotton bales wrapped in plastic in Jackson County. Photo credit: Doug Mayo, UF/IFAS

High quality fiber is one reason foreign mills have beat a path to our door in recent years.  As an industry, anything that impacts the demand and market share for our cotton—especially overseas, needs to be resolved.  The industry is being vigilant in addressing this problem.  Groups have visited foreign mills to observe and discuss the problem.  Also, the National Cotton Council will soon roll out an intensive educational effort.

Beginning with this year’s 2018 crop, the USDA-AMS Cotton Program is implementing new extraneous matter codes, 71 and 72, for plastic—“71” means type 7, level 1 (light) and “72” means type 7, level 2 (heavy).  Producers will begin to see these new 71 and 72 codes on their bale analysis classing reports, if plastic is detected in the sample.For 2018 loan value purposes, FSA will treat plastic as “Other” (codes 61 and 62).  Discounts for plastic are severe.  The loan value discount for level 1 is 460 points or 4.6 cents/lb—about $23 per bale.  The cash/spot market discount for a level 1 is currently mostly 375 to 550 points or, again, roughly $23 per bale.

Prior to this year, any bale sample found to contain plastic was coded as “Other”—a 61 or 62 (see the table above).  “Other” could also be anything else not otherwise in the above table.  But, now that plastic will have its own code, such a bale may be discounted even more severely.  Further, such a bale could be rejected from the market place entirely.

The severity of the plastics problem is not understated.  Therefore, an issue for the industry is this—it appears that classing data does not reflect what we feel is the true severity of the problem.  If bale sampling and classing were detecting any plastic to a great extent, classing data would show it.  If classing doesn’t detect the problem (if there’s plastic in the bale), then coming up with new classing codes wouldn’t necessarily be a solution except to say that if plastic is detected, it will now be coded and better known as such.

Let’s look back 3 years at both Texas and Georgia classing data as examples.  Prior to 2018, if plastic was found in the sample, it was coded as a 61 or 62 and included in the “Other” category.  In 2015, ’16, and ’17 if I take the total bales classed that contained extraneous matter of any sort and then subtracted everything but the “Other” category, then by definition the number of remaining samples classed must be the ones with any other type of contamination—plastic plus anything else not accounted for.The numbers in this table would then be the maximum possible number of bales that, when sampled, were found to contain plastic.  I am told that in some years, samples actually containing plastic were considerably less than this.

For Texas, 2017 was the Hurricane Harvey year and a big jump in 61s and 62s, but still less than 0.05 percent.  In Georgia for 2016, 4,700 running bales or 0.22% classed 61 or 62, but it’s believed most of this number was actually due to whitefly damage.

Unlike plant-based extraneous matter, plastic is generally not uniformly distributed in the bale.   There may be plastic in the bale, but not in the sample.  The plastic may not be realized until that bale gets run in the mill.  THIS is the problem.  If bales with plastic keep showing up, the mill may avoid that gin or origin all together.

Since classing may not necessarily catch the problem, even with the new coding, the only real solution is that producers and gins must be vigilant to adopt practices to keep plastic out.

 

 

 

 

 

 

 

Cotton Marketing News:  It’s Not 90 Cents, But It’s Darn Close

Cotton Marketing News: It’s Not 90 Cents, But It’s Darn Close

In deer hunting, I have too often been guilty of letting a good one walk in hopes that an even better one would come along later.  More often than not, that something better never happens.

After climbing into the 90’s, prices (Dec futures) took a tumble to the 82-83 cent level before beginning to mount a recovery.  That recovery was aided in part by USDA’s July 12th crop production and supply/demand numbers.  Prices have again began to slip just a bit and currently stand around 87 cents.

I can’t possibly know where you are in terms of your 2018 crop marketing decisions—how much has been priced and how—cash, Options, etc.  But my guess is that cotton growers are in one of several situations right now:

At Least a Little Bit Early On.  Some growers likely started pricing around 73 to 75 cents basis Dec.  Depending on how much was done there, additional sales could have been added probably at around 80 cents.

Nothing Early But Later.  Some growers maybe held off or missed at the 75 cent level for whatever reason and then jumped in at around 80 cents.  Likely have done additional sales since then.

Got 90 Cents or Better on Part of It.  I would hope that most growers, somehow, took advantage of the move to 90 cents or better.  I could see, however, that if a grower was already fairly well out on the limb at 75 to 80 cents that he/she may not have felt comfortable doing any more.

Missed 90 Cents.  For whatever reason, didn’t pull the trigger at 90+ and maybe has yet to even price anything.  It’s hard to imagine being in the situation of not having done anything at this point but I’m sure it’s happened.

We’re approaching August—IMHO always a critical time in the development of both the crop and price direction.  USDA’s July numbers hopefully gave the market some added support and the August estimate will be the first based on actual acres planted and yield estimates for each state.

In quick summary, in the July estimates:

  • The projected 2018 US crop was cut 1 million bales—due mostly to an increase in abandonment in the Southwest.
  • 2017 crop exports were increased 200K bales to 16.2 million—lowering carry-in stocks to the 2018 crop year.
  • 2018 crop exports were lowered ½ million bales.
  • Projected World use for the 2018 crop year was raised 1.6 million bales including a 1 million bale increase for China and 200K increase for both Bangladesh and Pakistan.
  • A reduction was made in China’s stocks—a 3 ½ million bale adjustment, correcting what some observers have said has been needed for a while.
  • No adjustments from the June estimates were made in China’s production and imports for the 2018 crop year.

The US crop is still uncertain and we’ll see what the August numbers show.  The July estimate accounted for a lower Southwest crop.  Could the Southwest crop still get smaller? Yes, but some of that could be offset by larger crops in other states.

The market has rallied to recover roughly half of the fall from 90+ cents.  The market has adjusted back up and the July numbers were good from a price-impact and support standpoint.  The likely range for prices in the near term is 82 to 90 cents.

We’re not at 90 cents, but the market is offering another good opportunity for additional pricing and/or price protection.

 

 

 

 

 

 

Will Feeder Calves Maintain Their Price Levels Through the Fall?

Will Feeder Calves Maintain Their Price Levels Through the Fall?

Cattle prices have struggled to move higher as beef supplies have been increasing. During the 3rd and 4th Quarter record supplies of animal proteins (beef, pork, and poultry) will continue to be harvested. Cold storage levels for all meat proteins are either at or above 2017 and 5-year averages. These supplies will be a price-limiting factor, despite extremely strong export beef demand. Additionally, losses at the feedlot level are mounting and expected to continue into the fall dampening overall price bids for replacement feeder calves.

Figure 1 looks at 550 pound Florida Feeder Steers for 2016, 2017, and 2018.

As shown in Figure 1, 2016 feeder calf prices (red line) maintained their price level early before severely declining over the second half of the year as meat protein supplies exceeded demand. During 2017, feeder calf prices (blue dashed line) never weakened moving from summer into fall as exports improved throughout the year. The stabilization in price during the second half of 2017 was unusual, as seasonal weakness typically occurs during the fall as feeder calf supplies reach the peak. However, exceptional export beef demand kept prices above 1st half 2017 levels. Thus far, the 2018 feeder calf market has continued to maintain prices at or above 2017 prices levels. The price range for 2018 Florida 550 pound Feeder Steers has traded in a $26/cwt. ($178 – $152/cwt.) or $143/head ($979 – $836/head) range. While, that dollar value may seem large, a comparison over the past few years proves that 2018 has been less volatile. Looking forward at the 2018 fall calf market, a quick look at the headlines reveals the uncertainties that exist around tariffs and trade agreements. Therefore, there is risk to calf values as producers look at marketing their animals this fall.

Figure 2 shows the 10-year seasonal price index for U.S. 550 pound Feeder Steers (2008-2017). The price index is simply a ratio of the monthly average prices to the yearly average price over 10 years. The price index ranges from 0.95 in November to 1.04 in June. The price index provides us with a relationship of how prices change during the year based on a 10-year history. The 10-year price index suggests that feeder steer prices increase in price from January through June, and declines significantly from July through November, and begins to slightly increase during December.

Thus far in 2018, cash feeder steer prices have closely followed the seasonal price trend. As seen in Figure 2, a decline in feeder steer prices during the fall months is normally expected due to the larger number of calves coming to town.

If Florida Feeder Steers prices follow their seasonal price trend during the second half of 2018, then calf prices will decline this fall. Given the assumption that Florida 550-pound Feeder Steers followed this seasonal trend, the realized Florida 550-pound Feeder Steer market price in November would be approximately $142/cwt. ($155/cwt.*(0.95/1.04)). Thus, the 10-year index expects a typical price break from summer (June) to fall (November) of $13/cwt. ($155-$142/cwt.) or $72/head.

If the above scenario is followed, producers may consider selling feeder calves earlier to avoid the fall price declines. Also, for those selling in truckload units, they may consider pre-selling (forward contracting) feeder calves for fall delivery.

Answering the question “Will Feeder Calves Maintain Their Price Levels Through the Fall?” will help you decide when to market 2018 feeder calves. Based on the long-term trends of the feeder calf market, producers should expect prices to decline from July to November. Producers seeking higher income for feeder calves held for fall delivery should consider forward pricing to protect their investment while adding additional pounds.  Good luck marketing your 2018 feeder calves.

 

Flip this Cow – Adding Value by Reconditioning Cull Cows

Flip this Cow – Adding Value by Reconditioning Cull Cows

Culling cows from the herd is a normal part of annual ranch management. How and when cull cows are marketed represents your last opportunity to generate revenue from each cow. There is an opportunity to add value to cull cows to generate some additional revenue for a cattle enterprise. Just as there are options to be compared before marketing weaned calves, producers should weigh their options before marketing cull cows.

There are a number of reasons for a cow to be culled from the herd. A primary reason is that the cow is open (not pregnant) when the herd is pregnancy tested. Without the prospect of a calf to sell, the open cow becomes an expense. Secondary to pregnancy status is age, as older cows are less productive or have greater risk of health and structural issues. Other reasons to cull a cow include disposition, not weaning a calf, overall poor performance, poor body condition, sickness, or injury. Certainly cows with active sickness/disease or that have not yet cleared withdrawal dates for animal health products should not enter market channels.  Cattle producers may have an interest in adding value to their own cull cows, or in creating another potential revenue stream, there is opportunity for improving the value of culls cows.

Adding Value to Cull Cows

Before embarking on the process of adding value to cull cows, you need to identify your goals and what resources you have available. Many cull cows are in poor body condition and will require a higher plain of nutrition to add weight. A primary consideration then for adding value to cull cows are economical feed resources. If pastures will be used to provide the base nutrition for reconditioning cows, make sure there is enough extra so that the main herd will not be impacted.  Any supplemental feed-stuffs used must provide the opportunity for a low cost of gain. Often these supplemental feeds might be leftover or excess hay or feed, or a delivery of low-cost byproducts from the previous year. However, not sacrificing the performance of the primary cow herd by diverting feed resources is important. The amount of pasture and supplementary feeds necessary to achieve an acceptable level of gain should be considered before you start. You also need to estimate the number of days necessary to add value to cull cows, so a total cost can be determined.

Figure 1. Example of the before and after of cull cow 931. (Gainesville FL, Photo credit Matt Hersom).

Aside from the feeding aspect of improving cull cow value is the marketing aspect of the reconditioned cull cows. For cull cows, the concept of differentials of weight, condition, price, and overall value drives profit potential.  The differential timing of cull cow purchasing and marketing and the associated prices can be large influences on the profit potential for improving cull cow value. Seasonal price differences in the cull cow market can influence profit potential. Likewise, the weight differential of purchasing light-weight cows and adding body weight is imperative. More pounds at the selling point drive the profit potential and decreases the overall cost of gain. Along with the body weight change, the differential change in perceived body condition is an important driver in cull cow value. Reconditioning of cull cows changes body composition and may move cows into improved value categories. Finally, determining the acceptable level of risk and available opportunity for profit should be evaluated. Each operator will have different comfort levels with risk, and different opportunities for profit.

Summer vs Fall Comparison

Table 1 has two examples of cull cow value improvement ventures. One initiated in the summer with six cows, the other initiated in the fall with five cows. In each case there was ample bahiagrass pasture available and available cheap by-product feed because of an existing contract. At each time cows were fed as a group in a single pasture. In-values are the price paid at the auction barn, in-weight and body condition score were determined at the farm. Data presented are the mean and range for the responses collected. All animals in each group were fed for the same number of days. In the summer group there was quite a spread in cull cow in- weight (200 lbs) and in-value (nearly $200) that existed. Likewise there was a spread in the cull cow average daily gain (1.3 lbs/day), cost of gain ($0.21/lbs), and final profit ($416.49) when the cows were marketed. In fact, in the summer group, three of the six cows resulted in an average loss of $110, whereas the other three resulted in a mean profit of $183. In contrast, the fall group was a much more uniform group in body weight, but still varied by $159 for in-value. Final body weight differed by only 50 lbs, but out-value differed by $415, and profit differed by $400. Compared to the summer group, the fall group did not gain as well, had higher cost of gain, but reconditioning resulted in all cows making a profit. Figure 1 presents a before and after example of a fall cull cow venture. Cow 931 had an in-weight of 985 lbs, body condition score of 2.2, and in-value of $434. After 84 days, cow 931 had an out-weight of 1,140, body condition score of 4.3, and out-value of $655, resulting in a profit of $127.

Click or tap image to enlarge for easier viewing.

Summary

Improving the value of cull cows offers income opportunity for cattle producers. Keys to success include having cheap feed resources available in the form of un-utilized pasture or forage and supplemental feed-stuffs at low or no-cost. Low-value cows can be turned into a value-added product by improving the carcass weight and condition of the cow to place into a different carcass quality category. Realize that some cows will have a ceiling of value and not every cow will make a profit. Cow performance and market timing affect a cow’s value ceiling. So each producer must evaluate the risk associated with flipping cows, the added costs and most importantly, the opportunity for profit.

 

Cattle On Feed Hints at Beef Production in Late 2018

Cattle On Feed Hints at Beef Production in Late 2018

Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist

On June 22, USDA’s National Agricultural Statistic Service released their Cattle on Feed report that showed a feedlot inventory of 11.553 million head of cattle in feedlots of more than 1,000 head capacity.  This is the largest June 1 feedlot inventory in the data series that began in 1996.  It is the eighteenth straight month of year over year increases and, in fact, feedlot inventories have been increasing year over year for 26 of the last 28 months.  Using a twelve month moving average of feedlot inventories (which removes seasonality and allows month to month comparisons of feedlot totals) shows that the current monthly average feedlot inventory is the highest since November 2012.

The on-feed total for June 1 was 104.1 percent of last year.  The rapid buildup in feedlot inventories last fall and early 2018 peaked in March compared to last year with a feedlot inventory 108.8 percent of one year earlier.  As was noted at the time, early placements fueled by poor winter pasture conditions doesn’t change to overall number of cattle and is offset later with smaller placements.  May placements were just fractionally higher than last year and followed two months of year over year decreases.  May placements were higher than average analyst expectation but not out of the range of guesses. Longer term, cattle numbers are still increasing and a general trend of growing feedlot inventories is expected for several more months at least.  Placement patterns the last few months have impacted the timing of feedlot production and the fed cattle market has been struggling a bit under the weight of bunched fed cattle supplies in the second quarter.

May marketings were 105.4 percent of last year, in line with pre-report expectations.  Annualized monthly average feedlot marketings began increasing in late 2015, following the herd expansion that began in 2014.  Current twelve month monthly average feedlot marketings are at the highest level since November, 2011.  Increased feedlot marketings translate into increased cattle slaughter and increased beef production   Increased beef production in the second half of the year will depend on the how much cattle slaughter increases and on how much carcass weights rebound from last year’s decline.  At the current time, annual beef production is projected to be up 4.0-4.5 percent year over year.

May feedlot placements included a 9.8 percent year over year increase in placements under 700 pounds, likely augmented by poor summer grazing conditions in some areas that likely deflected some cattle into feedlots.  At the same time, placements of cattle over 700 pounds were down 4.6 percent from last year. This suggests that feedlot cattle supplies will tighten relatively in the third quarter.  Fed cattle prices are expected to be lower year over year in the second half of the year but the timing of fed cattle marketings will reduce the price pressure relative to the second quarter.

Use the following link to access the full report: Cattle on Feed