Boosting the Value of Cottonseed
August 30, 2016 From Cotton Grower Magazine – August/September 2016
For many years, cottonseed often sat in the gin yard at the end of the ginning season – large piles of fuzzy seed waiting for use or disposal.
More recently, cottonseed’s value to ginners and to multiple end-use markets has been climbing. But the reality is still based on the simple economics of supply and demand. And, as cotton acres in the U.S. have declined in the past few years, so has the amount of available cottonseed.
“Cotton has enjoyed good growing conditions, even as acreage has been down,” stated James Beultel, senior analyst for Informa Economics and editor of Cottonseed Digest. “We see strong headwinds for cotton acres going forward, based on competition from other row crops. When that’s related to the amount of cottonseed being produced, there’s a similar pattern of supplies hanging just above the 4 million ton level.”
Bueltel, speaking to the recent Southern Cotton Ginners Association meeting in Little Rock, noted that although growers may be getting more fiber from the amount of cotton being ginned, tons of available cottonseed has been on a downward decline. This year, however, looks more promising.
“This year, we’re projected to be up to near 5 million tons of cottonseed supply,” he reported. “And, there’s a heavy boost in the amount of feed, seed and residual that’s going to the feed industry, primarily dairies. Crush is also expected to be up marginally, thanks to the increased supply.”
Over the past year, the cottonseed market price – going primarily to dairies – has been well above what the product value has been for crushers, thanks, in part, to the pressure on cottonseed meal pricing in early fall.
“Normally, during the ginning season, the price for cottonseed is at the low point of the year,” explained Bueltel. “That’s when a lot of it gets moved, and it is, in fact, below the average net product value for crushers. That means the crushers should be able to make a profit. And, in the case of a cooperative, they should be able to pay some of that back as a dividend.”
And what about cottonseed oil? The numbers show that the value of cottonseed oil to the net product value has been declining as growth and use of other edible oils like canola and palm oil have grown. A stymied opportunity to have cottonseed designated as an “other oilseed” by USDA didn’t help either.
And other uses? Bueltel noted that products like hulls commanded a premium because of their fit in sealing holes in oil fields with fracking. Lower crude oil prices, however, have taken a toll on that market.
That leaves the dairy industry as cottonseed’s traditional market. And the potential there looks solid.
“In the 2015-16 crop year, availability of cottonseed was down, and some dairymen took whole seed out of their rations based on poor profitability,” said Bueltel. “In 2017, I’m expecting people to get back on the whole cottonseed bandwagon and increase usage, because prices appear to be attractive. If dairymen are committed to feeding cottonseed – which is often the case – they don’t want to change their ration.
“Once it’s in there, they’ll be reluctant to let it go.”
Taking Another Swing at Legislative Help
Late last year, the National Cotton Council – working on marching orders from the organization’s Board of Directors – petitioned U.S. Secretary of Agriculture Tom Vilsack to use his discretionary authority to declare cottonseed as an “other oilseed” under the 2014 Farm Bill. That designation would have made cottonseed eligible for the ARC and PLC programs, thus potentially easing some of the financial stress impacting the cotton industry.
Despite broad grassroots efforts and the support of affiliated industry, other organizations and 100 members of Congress, the Secretary determined that he did not have the legal authority to make that designation without potentially reopening the farm bill.
The debate did garner the cotton industry the Ginning Cost-Share Program, which provided one-time, short term financial assistance to growers based on their 2015 cotton plantings. But it didn’t take care of future concerns.
So, what’s next?
“We are continuing to look for opportunities to try to seek that cottonseed designation,” stated Gary Adams, president and CEO of the National Cotton Council. “Secretary Vilsack closed one door when he said he didn’t have the authority to do it. But if we see some opportunities to look at it legislatively this year, then we will explore those. This would hopefully be something that would provide an interim until we get to the next farm bill debate.”
Adams admitted that legislative action comes with challenges – the biggest being budget costs and perception.
“With this Congress, we have to look at options that would have some budget offsets with savings in other areas,” he explained. “Any time we look at these changes, it’s viewed by some as opening the farm bill.”
Criticism came from several members of Congress when marketing certificates for cotton were authorized in the appropriations process for the 2015 crop and beyond. Some considered it double dipping, adding a commodity program to the existing STAX program.
“Anytime something is done on cotton policy, it’s going to get some attention,” admitted Adams. “We always have to be aware of international trade concerns, and that’s one of the reasons why we’ve looked at cottonseed as a possibility as opposed to direct support on the fiber.”
For now, NCC continues to explore various options for cottonseed within the organization’s Farm Policy task force. Every potential option raises questions regarding payment yields, reference prices, calculating minimum or floor prices, and more. Although nothing has been finalized, a general structure for one option may be taking shape.
“This would largely be viewed as a decoupled program with a payment yield for cottonseed that could be established based off historical averages, so it’s not tied to actual cottonseed production,” said Adams. “That’s one of the questions we’ve gotten from gins in the past. And there would be no requirement for a cottonseed marketing loan. That concept was not looked upon favorably by the NCC’s cottonseed segment or the ginning segment.
“As we look at options, we don’t want to affect anything that goes on in the existing upland cotton marketing loan.”
Finding a solution for cottonseed is still a priority for NCC, even with limited legislative time remaining in the year and the distractions of a presidential and congressional election.
“One way or the other, we will have a new administration in 2017,” noted Adams. “If we haven’t found any relief yet in some type of policy approach, I anticipate that will go to the new Secretary of Agriculture and ask about a cottonseed designation.
“The current Secretary said no. But we’ll go talk to the new one, if need be.”
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