Oilseed Impacts: RFS 20 Years In. Cottonseed Oil.

Welcome to the Oilseed Impacts newsletter, where I share my viewpoints on the global oilseed landscape.  This is the first of 8 editions exploring the 8 major oilseeds produced and crushed in the USA.  This week is all about Cottonseed Oil.

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Welcome to the first of 8 weekly articles looking at the 8 major seed oils produced in the US.

We’re reviewing what’s happened to each oil since the introduction of the RFS in 2005.

The goal is to better understand the dynamics of each market and hopefully gain some insight into what to expect, or at least monitor, over the next few years.

Jump in with me as we take a look at Cottonseed Oil.

Most of the data I’m using in this series is coming from the USDA Oilseed Yearbook. I also pulled animal numbers and other data from USDA sources.

Let’s get to it.

Landing at roughly 330 mil lbs for the 24/25 crop year, production of cottonseed oil is down ~65% since 2005. That’s the biggest decrease of any of the 8 major oils.   

Follow along as we look at these four pieces of the cottonseed oil story.

1. Cotton Acreage Shifts

2. Cottonseed Supply

3. Non-crush Cottonseed Demand

4. Cottonseed Crush

#1 Cotton Acreage Shifts

Check out this chart of cotton acres since 1985.

Cotton plantings in the 20 years post RFS are down 1 mil+ acres vs the prior 20 years. 

Harvested acres are down 2.3 mil acres (20%!). 

The difference between planted and harvested acres is generally termed abandonment. And that abandonment betrays another interesting trend in cotton. 

Planted acres are shifting out of some regions and into others.

Look at this map of the states where acres increased vs decreased since the mid 1980s.

California is down over 1 mil acres. The Delta states are down 1.3 mil. 

But Texas is up a million. And the Southeast states are up over 1 mil acres.

What’s driving this? Was it the RFS?

I’m no cotton expert, so take my point of view with a grain of salt. 

I reserve the right to be fabulously wrong.

But in my opinion: The RFS is NOT the culprit.

I see:

1. A shift out of high value irrigated farmland regions

2. A shift into the arid Plains (which explains the abandonment increase)

3. A shift into the Southeast

I can argue California, Arizona, New Mexico is not RFS related. Its likely a shift into higher value crops that thrive in that climate, perhaps mixed in with a few water scarcity issues.

I can argue the plains shift may have more to do with sub optimal wheat and milo demand than anything else.

I can argue the Delta reduction is a result of the decades long trend of growing global protein demand. This is shifting acres into soybeans and corn which are mostly exported via the Mississippi, feeding increasing animal numbers around the world.

The South/Southeast, I’m not sure. Perhaps its a lack of good infrastructure for soybean markets. Perhaps it’s a shift into row crops as their returns outperformed pasture. Perhaps it’s a policy shift. I just don’t know.

I’d love to hear your opinions on these shifts.

But for the sake of this conversation, point #1 is cotton acres are down. And that negatively impacts cottonseed crush economics.

#2 Cottonseed Production

An important, and obvious, point about cottonseed is it is a BYPRODUCT of cotton production. The target crop for farmers is the fiber. The seed is just along for the ride.

But there is a trend here worth noting. Follow along in the next few charts.

First up is cotton production from 1985 – 2024.

There’s lots of noise in cotton production due in part to abandonment bouncing around with precipitation in the Plains. But the trendline is slightly higher, even with reduced overall acres.

Now look at cottonseed production.

Cottonseed production is on a clear downward trend, in spite of increased cotton production.

The trade talks about this using the term seed turnout, which is a measure of lbs of seed produced per bale of cotton fiber.

Here’s the seed turnout chart.

Its clear to see that priority is placed on fiber production over seed production in cotton genetics. And that makes sense. Cottonseed is worth ~$.13/lb, and cotton fiber is ~$.68/lb. 

The unfortunate truth is cottonseed production is completely dependent on fiber production econs. Cottonseed crushers can’t really influence seed production. They can only deal with the hand they are dealt.

Now let’s move to the demand side of the seed balance sheet.

#3 Non-crush Cottonseed Demand

The fact is there is more than enough seed produced in the US to have a robust cottonseed crush business. 

In 2024 total seed production sat at roughly 4.4 million tons, of which only 1.3 million were crushed.

So this begs the question, where is the seed going?

A small amount (250-300k tons) is exported annually. Accounting for 6-8% of total demand.

The balance is largely fed to cattle, with a heavy emphasis on dairy cattle. 

Due to gossypol content, cottonseed and cottonseed meal is toxic to pigs/chickens at low dosages.

Here is a document published by Cotton Incorporated that discusses cottonseed in dairy rations extensively. I referenced it heavily when writing this.

Gossypol toxicity is a limiting factor in dairy rations also. The above data source suggests 5-8 lbs/day in a dairy ration is optimal.

Even with this constraint, whole cottonseed provides an energy dense ration that is high in protein, fat, and fiber. Its exactly what early lactation cows need when they are in a negative energy balance.

I did the math looking at seed disappearance and compared it to dairy cow head counts and milk production. Unfortunately, fluctuating seed supply year to year makes the data too messy to see a steady trend. Not to mention beef cattle feeding is included in this demand category.

But the fact remains it’s a preferred ingredient, and when seed supply is high, inclusion rates increase.

Look at this chart to see what I mean.

Seed supply doubled from ~4 mil to ~8 mil tons from 1985-2005. And all that supply increase, plus some, went into feed. And its kept its share as seed supply has dropped since 2005.

#4 Cottonseed Crush

Feed overtook crush as the biggest demand component in 1998 and has never looked back.

Currently seed supply is back down to ~4 mil tons, and crush demand is now down to 1.3, from a high of ~4 in the early 90s.

It seems that no matter how much seed is available year to year, feed demand keeps outcompeting crush.

It’s a tough storyline. 

Better economics for whole seed dairy feeding is one piece of the story. But the hits keep coming.

Catfish has historically been a strong demand factor for cottonseed meal, a midprotein product of cottonseed crush. Meal has similar gossypol issues as whole seed, so cattle and fish are the primary outlets.

But catfish production is down from over 600 mil lbs in 2005 to right around 300 mil lbs today. With feed efficiencies much improved to boot.

And there is one more piece of bad news.

Look at this chart of crush volumes, oil production and seed oil yields since 2005.

An additional reason for pressure on crush margins is oil yield, which has slipped from over 16% oil content to 13% since 2005. That’s about $30/ton in lost margin to the crusher.

Cottonseed oil does enjoy a price premium over soy/canola in the US. But increasing the oil price further has its own consequences. The market now is getting small enough that losing a big customer or two to a different oil could prove an existential risk.

It’s a difficult position.

Summary

From reduced acres, to poor seed turnout, to tough competition from dairies, to lost meal demand from catfish, to shrinking oil yields…it’s hard to find good news.

Cottonseed oil isn’t an RFS story. It’s the story of a combination of factors combining to push against an industry.

Importantly, behind the charts of relentlessly lower crush volumes over the last 35 years are stories of multiple closed crush facilities, many in struggling Delta towns. For surviving plants, it’s a challenge to justify maintenance CAPEX, forget about growth projects.

And 2025 cotton planted acres are down again, with Delta farmers in particular electing to plant corn.

The beat goes on.

I hope you got some good out of this overview.

There’s of course more to this story than 1400 words can cover.

Let me know what I missed. I’d love to hear from you.

Next week we’re staying in the South and taking a look at peanut oil. See you then!

Thanks for reading Oilseed Impacts.

New editions drop weekly.

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