Cotton Sticking Close to Steady on Friday Morning

Cotton futures are showing mixed movement, with near-term contracts slightly up and others down, following positive trade on Thursday. USDA's Export Sales report indicated a 4-week low in sales for 2024/25 cotton at 109,785 RB, while new crop business hit a 7-week high, driven by Vietnamese demand; April exports reached a 3-year high of 1.66 million bales, though down from March figures.

Analysis

Cotton futures are exhibiting mixed price action, with the July contract showing a marginal gain of one point while other contracts are down 8 to 10 points, following a generally positive trading session on Thursday where contracts rose 20 to 40 points. Supporting this market dynamic, crude oil prices increased by 43 cents per barrel, and the US dollar index remained steady at $98.670. The USDA's Export Sales report indicated a slowdown in current demand, with 2024/25 cotton sales for the week ending May 29 at a 4-week low of 109,785 running bales (RB), led by purchases from Bangladesh (34,200 RB) and Vietnam (24,700 MT). Conversely, new crop business for 2024/25 reached a 7-week high of 38,984 RB, with Vietnam being a significant buyer at 17,900 RB. Export shipments demonstrated strength, hitting a 3-week high of 316,134 RB, primarily destined for Turkey (98,300 RB) and Vietnam (87,400 RB). Further underscoring robust export activity, April Census data revealed cotton exports (excluding linters) hit a 3-year high of 1.66 million bales, a 37.19% year-over-year increase, although this represented a 9.47% decrease from March figures. The Seam's auction on Wednesday saw 309 bales sold at an average of 69 cents/lb, while the Cotlook A Index declined by 35 points to 78.25 on June 4. ICE certified cotton stocks remained stable at 53,700 bales as of June 4. Specific contract movements show Jul 25 Cotton closed at 65.36 (up 37 points, currently up 1 point), Oct 25 Cotton at 67.28 (down 13 points, currently down 10 points), and Dec 25 Cotton at 67.98 (up 21 points, currently down 9 points), reflecting near-term support but some pressure on deferred contracts.

Key Decisions for Investors

• Investors should closely monitor the divergence between the 4-week low in current export sales and the 7-week high in new crop bookings, as this signals a potential shift in demand timing or price sensitivity.
• Given the 3-year high in April export volumes but a subsequent dip from March, continued scrutiny of monthly shipment data is crucial to ascertain if robust export demand is sustainable.
• The mixed signals from futures contracts, with near-term strength and deferred-month weakness, alongside a declining Cotlook A Index, warrant a cautious approach, potentially favoring strategies that hedge against price volatility or await clearer trend confirmation.