Cotton Turns Higher into Friday’s Close

Cotton futures saw mixed performance, with front month contracts gaining slightly while December futures declined marginally on Friday; July futures were down 127 points for the week. Export sales hit a 3-week low at 118,658 RB, with Vietnam as the top buyer, while shipments rebounded to 275,379 RB, also primarily to Vietnam. Speculators increased their net short positions by 3,180 contracts to 43,219 as of May 27.

Analysis

Cotton futures displayed a mixed performance on Friday, with front-month contracts achieving slight gains of 20 to 22 points, while the December contract experienced a marginal decline of one point. However, the weekly perspective was decidedly weaker, as July futures dropped 127 points and December futures fell 87 points, signaling underlying bearish pressure. This sentiment is compounded by export sales data for the week ending May 22, which reached a three-week low of 118,658 running bales (RB), with Vietnam purchasing 65,600 RB. Conversely, shipment volumes rebounded to 275,379 RB in the same week, again with Vietnam as the primary destination for 117,000 RB. Speculative positioning further underscored a cautious market outlook, as the Commitment of Traders report for May 27 showed an increase in net short positions by 3,180 contracts, to a total of 43,219 contracts. Additional market indicators presented a varied picture: the Cotlook A Index decreased by 25 points to 77.70 on May 29, and ICE certified cotton stocks rose by 1,143 bales to 43,006 bales, which typically indicates increased supply availability. In contrast, the USDA’s Adjusted World Price (AWP) saw a weekly increase of 32 points to 53.84 cents/lb. External factors such as a $0.21 decline in crude oil prices and a $0.161 rise in the US dollar index to $99.370 may also be influencing cotton prices.

Key Decisions for Investors

• Given the predominantly negative weekly performance, subdued export sales, and increased speculative short selling, investors should maintain a cautious stance on cotton futures, closely monitoring upcoming demand figures and global macroeconomic indicators.
• The rebound in shipments and the rise in the AWP provide some conflicting signals; therefore, investors might consider waiting for more definitive trend confirmations before significantly altering positions, while observing if the recent increase in ICE stocks continues.
• Investors should assess the potential ongoing impact of a stronger US dollar and weaker crude oil prices, as these external factors could continue to exert downward pressure on cotton valuations.