Cotton Pushes Higher into Long Weekend

Cotton futures are trading higher this morning, with July '25 contracts up 49 points, following gains last week. Money managers increased their net short position by 10,951 contracts to 40,039 as of May 20th, while the USDA's Adjusted World Price decreased by 38 points to 53.52 cents/lb.

Analysis

Cotton futures are exhibiting short-term strength, with prices advancing 33 to 50 points on Tuesday morning, building on gains from the previous week where the July contract increased by 122 points. For instance, July '25 cotton futures closed at 66.11 cents/lb, up 48 points, and were trading an additional 49 points higher. Despite this price appreciation, money managers significantly expanded their net short positions in cotton futures and options by 10,951 contracts to a total of 40,039 contracts as of May 20, indicating increased bearish sentiment from this speculative group. Physical market data shows The Seam reported sales of 245 bales at an average of 56.74 cents/lb on May 22, while the Cotlook A Index remained unchanged at 78.25. A key development is the increase in ICE certified cotton stocks by 2,444 bales to 42,240 bales as of May 22, suggesting greater deliverable supply. Furthermore, the USDA’s Adjusted World Price (AWP) declined by 38 points to 53.52 cents/lb. External market factors provided some support, with crude oil prices up 51 cents and the US dollar index falling to $99.000, which can make USD-denominated commodities more attractive.

Key Decisions for Investors

• Investors should closely monitor the divergence between the current upward price momentum in futures and the substantial increase in net short positions held by money managers, which signals underlying bearish conviction.
• The rise in ICE certified stocks to 42,240 bales, coupled with a declining USDA Adjusted World Price of 53.52 cents/lb, suggests increasing physical supply availability and potentially softer global price benchmarks that could cap further rallies.
• Given these mixed signals—short-term price gains versus bearish institutional positioning and rising stocks—a cautious approach is warranted, focusing on whether fundamental supply-demand factors will align with or counter the recent speculative buying activity.