Cotton Bouncing Back on Friday Morning

Cotton futures are trading slightly higher Friday morning after a pullback on Thursday, with nearbys up 10 to 19 points. Export sales data showed a 5-week high of 141,428 RB sold for the week ending May 15, though still down 30.31% year-over-year, while shipments hit their lowest level since late January. The market will be closed Monday for Memorial Day, delaying government reports until Tuesday.

Analysis

Cotton futures are experiencing a modest rebound on Friday morning, with contracts up 10 to 19 points, partially recovering from Thursday's pullback where nearbys closed down 40 to 47 points. This price action occurs amidst mixed fundamental signals and external market pressures. Export sales for the week ending May 15 reached a 5-week high at 141,428 running bales (RB), primarily driven by purchases from Vietnam (61,800 RB) and Turkey (19,400 RB). However, this volume is still 30.31% below the same week last year, indicating persistent year-over-year demand weakness. Compounding concerns, shipments totaled 251,531 RB, marking the lowest level since late January, with Vietnam and Pakistan as top destinations. The market is also contending with a stronger US dollar index, up $0.400 to $99.835, and lower crude oil prices, down 77 cents, both of which can act as headwinds for US cotton exports. Other market indicators present a varied picture: The Seam reported sales of 1,311 bales at an average of 72.07 cents/lb, the Cotlook A Index rose 65 points to 78.25 cents/lb, while USDA’s Adjusted World Price (AWP) decreased by 38 points to 53.52 cents/lb. ICE certified cotton stocks remained steady at 39,796 bales. Trading activity may be subdued ahead of the Memorial Day holiday, which will see markets closed on Monday and government reports delayed until Tuesday, postponing fresh official data.

Key Decisions for Investors

• Investors should closely monitor the impact of the strengthening US dollar and declining crude oil prices, as these factors could continue to exert downward pressure on cotton futures.
• The divergence between a 5-week high in weekly export sales commitments and the lowest shipment levels since late January warrants careful observation, as it may signal either logistical bottlenecks or a weakening in actual off-take of previously sold cotton.
• Given the market closure for Memorial Day and the subsequent delay in government reports, coupled with the significant 30.31% year-over-year decline in export sales despite a weekly uptick, a cautious stance is advisable until more comprehensive USDA data provides clearer market direction next week.