China cottonseed meal poised for more upward movements
An eFeedLink Exclusive
Cotton production in China has reduced steadily over the past two years, coincidentally a period where cotton supplies tightened globally. The supply crunch, coupled with a weak US dollar and global inflation fuelled the price rally in China's cotton market lately.
By end-October, the purchase price of 12-14% moisture (Grade 3) cottonseed in Xinjiang region has hit RMB12.90–13.00/kg (US$1.94-1.96), while that of 39–40% moisture (Grade 4) cottonseed from the same region reached RMB12.40–12.60/kg (US$1.87-1.90). Meanwhile, grade 3 cotton lint was priced at over RMB28,000/tonne.
In Shandong, purchase prices of Grade 3 cottonseed were close to RMB12/kg (US$1.81) with Grade 3 cotton lint priced about RMB27,000/tonne (US$4,063), recording an increase of 50–70% compared with the previous year.
Tight supply, wild market
As a by-product of cotton, prices of cottonseed meal had surged in recent years, except for a momentary dive since the global economic meltdown during late 2008, on the back of growing demand and insufficient supply. This year, with prices of cotton on the rise, cottonseed meal prices had soared in tandem since September.
eFeedLink statistics show that crushers had priced cottonseed of 13% moisture and 11% oil contents at about RMB2,300/tonne as at October 1, 2009; by October 30, prices in the main producing regions had increased moderately to RMB2,650/tonne (US$399). This year, even as freshly harvested cottonseed raised the supplies substantially in the market since September, prices of 15% moisture cottonseed had reached RMB3,700/tonne (US$557) by mid-October and hit RMB4,000/tonne (US$602) by end of the month, jumping tremendously by over 50% year-on-year.
Stronger support from feed industry in 2011
In feed production, the main consumers of cottonseed meal are the swine, aquaculture industries, consuming 30% of the country's cottonseed meal supply each, while poultry and ruminant industries use 20% and 15% of China's cottonseed meal respectively.
In 2010, the performance of these industries had been weak due to the economic slowdown, which is not helped by the adverse climates in China this year, resulting in droughts in the southwest, floods in several regions and abrupt temperature swings. This year's aqua feed output, which has been below expectation as aquaculture was severely disrupted by the floods in several regions, is expected to fall below last years annual production level. Meanwhile, swine inventory growth has been decimated by the weak prices in the first few months and the soaring feed costs later part of the year; swine feed demand is therefore expected to stay unchanged on-year. The poultry industry, which performed better, will likely see a moderate growth of 4% in annual feed production.
The slack overall demand for animal feed points two noteworthy facts. First, the strong cottonseed meal market is unlikely to affect the demand for cottonseed meal significantly for the rest of the year. Second, even with animal feed consumption at low levels this year, cottonseed meal has resisted downward pressure rather resiliently, falling only about 15% and holding well above the pit bottom prices of 2008 and 2009 when aqua feed output was decimated by floods during summertime. Looking forward, when feed demand picks up next year, as generally expected, cottonseed meal prices are set to rally, especially as supplies stay tight.
We expect China's grade 3 cotton lint to rise to at least RMB30,000/tonne (US$4,515) while cottonseed meal prices approach RMB3,000/tonne (US$451). Should soymeal prices rise escalate further due to lower global production of soy, cottonseed meal market will be given a stronger boost to move higher.
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