Cotton Leaking Lower on Tuesday Morning

Cotton futures are trading lower on Tuesday, with most contracts experiencing losses between 5 and 18 points, while July contracts are up 16 points. USDA reported that 76% of the US cotton crop is planted, lagging the 80% average, while crop conditions remain steady at 49% good/excellent. The Cotlook A Index increased by 25 points to 77.75 on June 6, and ICE cotton stocks decreased by 174 bales due to decertification, bringing certified stocks to 51,965 bales.

Analysis

Cotton futures are exhibiting mixed trading patterns early Tuesday, with most contracts experiencing modest losses of 5 to 18 points, while the July contract shows strength, up 16 points. This follows a generally positive close on Monday where futures gained 14 to 37 points, with the exception of the October contract which fell 54 points. Supporting commodity prices, crude oil rose $0.80 per barrel, and the US dollar index weakened by $0.152 to $98.990. Fundamentally, the USDA reported US cotton planting at 76% complete as of Sunday, trailing the 80% five-year average, which could imply potential supply constraints if catch-up is not achieved. However, crop development appears on track with 12% squared, aligning with the five-year average, and conditions remain stable at 49% good/excellent, reflected by an unchanged Brugler500 index at 324. The Cotlook A Index rose 25 points on June 6 to 77.75, indicating some strength in physical markets, while ICE certified cotton stocks decreased slightly by 174 bales on June 5 to 51,965 bales due to decertification. The USDA’s Adjusted World Price (AWP) saw a minor decrease of 8 points last week to 53.76 cents/lb.

Key Decisions for Investors

• Investors should closely monitor upcoming USDA reports for planting progress given the current lag behind the five-year average, as this remains a key variable for future supply.
• Consider the diverging price action between the front-month July contract (currently up 16 points) and deferred contracts like October (currently down 18 points), which may present spread trading opportunities or indicate shifting near-term versus long-term supply and demand expectations.
• Pay attention to movements in ICE certified stock levels, which recently saw a minor decrease, and the Cotlook A Index for further indications of physical market tightness or easing, alongside broader commodity influences like crude oil and the US dollar.