Extreme drought across Texas and the South is expected to decimate a significant portion of the 2011 cotton crop, causing experts to lower previously optimistic forecasts for cottonseed supplies. Amid tightened supplies, demand among dairy producers is expected to remain strong. "What looked like one step forward for cotton — and cottonseed — production could actually turn out to be two steps back," says Tom Wedegaertner, director of cottonseed research and marketing, Cotton Incorporated. "Despite 1.3 million more acres planted to cotton this year, poor growing conditions could wipe out about 2 million acres."

In Texas alone, which represents half of total U.S. cotton production, 89 percent of the crop is in fair to poor condition, according to a USDA report reflecting the week ending July 10. Wedegaertner translates the turn of events for dairy producers: "While earlier this year we anticipated about 4 million tons of cottonseed being available to dairy producers, up from 3.7 million tons in 2010, we may now be looking at 3.3 tons of cottonseed."

John Robinson, professor and extension economist, cotton marketing, at Texas A&M University, adds that while cottonseed availability will decrease, product demand is expected to remain steady.

"Reports are showing that beef cattle demand will be lower, while dairy demand for cottonseed may come in higher. So, we should expect cottonseed demand aligning with that of last year’s. And with reduced supply, stronger prices are being suggested."

With the anticipation of higher cottonseed prices, some experts are recommending dairy producers book up to half of their needs at once, especially if it fits into their ration. "Since it's hard to predict a dip in the market, we are suggesting dairy producers initially buy 25-50 percent of their needs," says Larry Johnson, chief operating officer at Cottonseed LLC. "Then, finish purchasing their supply sometime between now and harvest," he adds.

While the cottonseed market will always ebb and flow, there are ways for dairy producers to prepare for dips. According to Wedegaertner, a little bit of planning and staying up-to-date on the field can help dairy producers mitigate swings in pricing and keep cottonseed in their rations.