Cotton Falls on Tuesday

Cotton futures declined Tuesday, with most contracts falling between 50 to 70 points amid expected rains from central Texas to the Southeast and a strengthening US dollar. Planting progress in Texas and Georgia is slightly behind the average pace, though crop conditions remain steady at 49% good/excellent. ICE cotton stocks increased by 1,386 bales, while the USDA's Adjusted World Price decreased by 8 points to 53.76 cents/lb.

Analysis

Cotton futures registered significant declines on Tuesday, with most contracts falling 50 to 70 points and the October contract down 120 points, primarily influenced by expectations of substantial rainfall across central Texas and the Southeast, which is adding pressure to prices. Further contributing to the bearish sentiment was a $0.59/barrel drop in crude oil prices and a $0.119 rise in the US dollar index to $99.025. On the supply side, the USDA reported US cotton planting at 76% complete as of Sunday, trailing the 80% five-year average, with Texas at 72% (behind its 74% average) and Georgia at 87% (2% behind normal). Despite the slower planting pace, 12% of the crop was squared, aligning with the five-year average, and national crop conditions held steady at 49% good/excellent, reflected by an unchanged Brugler500 index at 324, although Texas ratings declined 3 points while Georgia's improved by 4 points. Inventory levels saw an increase, with ICE certified cotton stocks rising by 1,386 bales to 53,351 bales. The USDA's Adjusted World Price (AWP) for cotton decreased by 8 points to 53.76 cents/lb last week, while the Cotlook A Index showed a modest gain of 25 points to 78.00 cents/lb on June 9th, and The Seam reported online sales of 1,581 bales at an average price of 71.25 cents/lb.

Key Decisions for Investors

• Investors should exercise caution with long cotton positions due to immediate bearish pressures from anticipated rainfall in key growing regions and a strengthening US dollar, as evidenced by the 50-120 point drop in futures.
• Monitor upcoming USDA reports on planting progress and crop conditions, as the current lag in planting (76% vs 80% average) could shift market dynamics if conditions do not improve or delays worsen, despite currently stable national crop health (49% gd/ex).
• Consider the increase in ICE certified stocks (up 1,386 bales to 53,351) and the lower USDA Adjusted World Price (53.76 cents/lb) as indicators of potentially softening near-term demand or adequate supply, which may temper price rallies.