Cotton Popping Higher at Midday

Cotton futures are trading higher, with most contracts up 30-46 points at midday, supported by rising crude oil prices and a stronger US dollar. USDA export sales data indicates upland cotton sales are down 7% year-over-year but remain 111% of the USDA's export forecast, while shipments are up 2% year-over-year and represent 90% of the USDA's expected number. The Cotlook A Index decreased by 75 points to 77.50, and ICE cotton stocks declined by 1,561 bales due to decertification.

Analysis

Cotton futures are exhibiting upward momentum at midday, with most contracts registering gains between 30 and 46 points; for instance, July 25 Cotton is trading at 65.82, an increase of 46 points. This price action is occurring alongside a supportive rise in crude oil prices, which are up $1.37 per barrel to near $65, potentially increasing the competitiveness of natural fibers. However, a strengthening US dollar index, up $0.466 to $99.170, presents a potential headwind for export demand. According to USDA data as of May 29, upland cotton sales stand at 11.525 million running bales (RB), a 7% decrease year-over-year, yet this volume represents 111% of the USDA's export forecast, slightly trailing the five-year average pace of 112% for this period. Conversely, shipments are robust, totaling 9.314 million RB, up 2% year-over-year and fulfilling 90% of the USDA's anticipated total, significantly ahead of the 81% average. Recent physical market activity includes 1,660 bales sold at an average of 66.20 cents/lb in Thursday's auction from The Seam. International benchmarks show some softness, with the Cotlook A Index declining 75 points to 77.50 on June 5. Meanwhile, ICE certified cotton stocks decreased by 1,561 bales to 52,139 bales due to decertification, signaling a potential tightening of deliverable supply.

Key Decisions for Investors

• Investors should closely monitor the interplay between rising crude oil prices, which are supportive for cotton, and the strengthening US dollar, which could dampen export competitiveness.
• The USDA export data warrants careful observation; while sales are 111% of forecast, the 7% year-over-year decline and the current sales pace being slightly below the 5-year average (111% of forecast vs 112% average) suggest continued scrutiny of demand is necessary, even as shipments outperform.
• The reduction in ICE certified stocks to 52,139 bales due to decertification should be tracked as an indicator of physical market tightness, which could further bolster futures prices if the trend persists.
• Note the divergence between the appreciating domestic futures prices (e.g., Jul 25 Cotton up 46 points) and the recent decline in the international Cotlook A Index (down 75 points to 77.50), as this may signal evolving global supply-demand balances or regional price disparities.