Cotton Closes Higher on Tuesday

Cotton futures saw gains of 30 to 50 points Tuesday, supported by crude oil price increases and a weakening US dollar. US cotton planting is slightly behind the 5-year average, with Texas and Georgia lagging normal planting progress. ICE cotton stocks increased by 2,213 bales, while the Cotlook A Index decreased by 50 points.

Analysis

Cotton futures registered gains ranging from 30 to 50 points across various contracts on Tuesday, with July 25 cotton closing at 66.12 cents/lb (up 48 points) and December 25 cotton at 68.74 cents/lb (up 40 points). This upward movement was primarily influenced by supportive external market dynamics: crude oil prices edged up by 12 cents, and the US dollar index weakened significantly by $0.413 to $99.875. On the supply side, US cotton planting progress stood at 40% complete as of Sunday, lagging the five-year average of 43%, with key states Texas (35% planted, 3 points behind normal) and Georgia (41% planted, 4 points behind normal) also trailing their respective paces, potentially signaling tighter future supply. However, other market indicators present a more mixed picture. ICE certified cotton stocks increased by 2,213 bales to 36,366 bales on May 19, suggesting an increase in deliverable supply. Concurrently, the Cotlook A Index, a benchmark for physical cotton, declined by 50 points to 76.75 on Monday, and the USDA’s Adjusted World Price (AWP) had decreased by 91 points to 53.90 cents/lb the previous Thursday, indicating some softness in broader international cash markets despite the day's futures rally. Recent physical market activity saw 2,465 bales sold on The Seam at an average price of 63.48 cents/lb on May 19.

Key Decisions for Investors

• Investors should closely monitor upcoming US cotton planting progress reports, as continued delays could lend further support to futures prices by implying potential constraints on future supply.
• Consider the current divergence where cotton futures are appreciating, supported by macroeconomic factors such as a weaker dollar and firmer oil, while key physical market indicators like the Cotlook A Index and AWP show declines and ICE stocks are rising.
• Acknowledge the mixed fundamental signals in the cotton market; while planting delays and favorable external factors offer bullish short-term support for futures, the increase in certified stocks and lower cash market indices suggest underlying caution or adequate current supply in the physical market.