Cotton Falls Back on Thursday

Cotton futures declined Thursday, with nearbys closing down 40 to 47 points amid a drop in crude oil prices and a stronger US dollar. Export sales reached a 5-week high of 141,428 RB, but remained 30.31% below last year's figures, while shipments fell to a low not seen since January. The Cotlook A Index rose 65 points to 78.25, while the USDA's Adjusted World Price decreased by 38 points to 53.52 cents/lb.

Analysis

Cotton futures experienced a notable pullback, with nearby contracts closing down 40 to 47 points, exemplified by Jul 25 Cotton settling at 65.63 cents/lb, a decrease of 44 points. This decline occurred alongside bearish macroeconomic pressures, specifically a 77-cent drop in crude oil prices and a $0.400 rise in the US dollar index to $99.835. While export sales for the week ending May 15 reached a 5-week high at 141,428 running bales (RB), this figure was still 30.31% lower than the corresponding week in the previous year, indicating persistent demand softness. Furthermore, actual shipments of 251,531 RB marked the lowest level since late January, with Vietnam and Pakistan as primary destinations. In contrast to the futures market, the Cotlook A Index showed strength, rising 65 points to 78.25, while the USDA’s Adjusted World Price (AWP) decreased by 38 points to 53.52 cents/lb. ICE certified cotton stocks remained stable on May 21 at 39,796 bales, suggesting no immediate supply-side pressure from certified inventory changes.

Key Decisions for Investors

• Investors should maintain a cautious outlook on cotton futures, given the recent price declines, significantly lower year-over-year export sales, and the lowest shipment levels since January, despite a 5-week high in weekly sales.
• Monitor the impact of the stronger U.S. dollar and weaker crude oil prices, as these macroeconomic factors are currently weighing on cotton values and contributing to the bearish sentiment.
• Closely scrutinize upcoming export sales and shipment data for any sustained recovery in international demand, and be aware of the mixed signals from the rising Cotlook A Index versus the declining USDA Adjusted World Price and futures prices.