Cotton Posting Monday AM Weakness

Cotton futures plunged, down 17–24 points Monday after a 35–41 point drop on Friday and a 113-point weekly decline for December; nearby contracts (Dec, Mar, May) remain notably weaker. The USDA raised U.S. cotton yield by 58 lb/acre to 919 lb, lifting production to 14.12 million bales, raising exports to 12.2 million and increasing ending stocks by 700,000 to 4.3 million; Cotlook A fell to 74.95 c/lb, the Adjusted World Price was reported at 51.83 c/lb, ICE certified stocks rose and a Seam auction averaged 59.91 c/lb. Larger U.S. supply, higher certified stocks and softer global price benchmarks are weighing on futures and suggest continued downside risk for cotton prices.

Analysis

Cotton futures opened sharply lower, down 17–24 points Monday after a 35–41 point drop on Friday and a 113-point weekly decline for the December contract; December, March and May contracts closed recently at 62.49, 64.13 and 65.35 cents/lb respectively and are trading further off those levels today. The market pushed to new lows Friday and continued weakness Monday signals ongoing technical selling pressure and liquidation in nearby contracts.

USDA raised U.S. cotton yield by 58 lbs/acre to 919 lbs, which increased U.S. production by 900,000 bales to 14.12 million and lifted ending stocks by 700,000 bales to 4.3 million; exports were modestly increased by 200,000 bales to 12.2 million. ICE certified stocks rose by 1,005 bales to 19,244 and the Cotlook A index fell to 74.95 c/lb while the Adjusted World Price was reported at 51.83 c/lb; an online Seam auction averaged 59.91 c/lb on 834 bales.

The combination of higher U.S. supply, rising certified stocks and softer global benchmarks is the primary driver of the current bearish tone; modest export revisions have not offset the supply overhang. Macro cross-currents—Crude oil up to $59.92 and the US dollar index up to 99.17—are not sufficiently supportive to reverse price pressure, so near-term downside risk remains until inventories or demand indicators show clear improvement.

Key Decisions for Investors

• Trim or avoid fresh long positions in cotton futures given the USDA-driven production increase and recent new lows
• Consider hedging existing long exposure with short futures positions or put options to protect against further downside while monitoring option costs
• Watch weekly USDA updates, ICE certified stocks, Cotlook A and the Adjusted World Price for signs of inventory stabilization or demand improvement before adding exposure
• Producers and merchandisers should assess locking in sales or using collars given elevated stocks and downward price momentum