Cotton Pushes Higher into Friday’s Close

Cotton futures saw gains across most contracts on Friday, with July futures up 56 points for the week, while managed money increased their net short position by 3,386 contracts to 46,605 as of June 3rd. Upland cotton sales are down 7% year-over-year but remain 111% of USDA's export forecast, while shipments are up 2% year-over-year and account for 90% of the USDA's expected number. The Cotlook A Index decreased by 75 points to 77.50, and ICE cotton stocks declined by 1,561 bales due to decertification.

Analysis

Cotton futures registered gains between 16 to 26 points across most contracts on Friday, with the July contract notably increasing by 56 points throughout the week, and the July 2025 contract closing at 65.62 cents/lb. This upward price movement contrasts sharply with positioning data, as managed money expanded their net short position in cotton futures and options by 3,386 contracts to a significant 46,605 contracts as of June 3rd, indicating growing bearish sentiment among speculators. On the fundamental side, USDA's Export Sales data revealed upland cotton sales at 11.525 million running bales (RB) as of May 29th, which, while 7% lower than the previous year, represents 111% of the USDA's export forecast, nearly aligning with the five-year average pace of 112%. Cotton shipments have been robust, totaling 9.314 million RB, up 2% year-over-year and achieving 90% of the USDA’s anticipated volume, well above the 81% average for this period. However, other price benchmarks showed weakness: the Cotlook A Index declined by 75 points to 77.50, and the USDA’s Adjusted World Price (AWP) fell by 8 points to 53.76 cents/lb. Physical market dynamics included a reduction in ICE certified cotton stocks by 1,561 bales to 52,139 bales due to decertification, while Thursday's auction on The Seam saw 1,660 bales sold at an average of 66.20 cents/lb. External market factors included crude oil prices rising $1.43/barrel towards $65 and the US dollar index strengthening by $0.466 to $99.170, both of which can influence commodity pricing.

Key Decisions for Investors

• Investors should closely monitor the divergence between rising futures prices and the increasing net short position of managed money, as this could signal a potential short squeeze or, conversely, a market susceptible to further declines if speculative selling pressure continues.
• The strength in export shipments, which are ahead of both last year's pace and USDA projections, needs to be weighed against the 7% year-over-year decline in sales commitments to gauge true demand strength and the likelihood of meeting annual targets.
• Consider the influence of declining global cotton benchmarks like the Cotlook A Index and AWP, alongside movements in crude oil and the US dollar, as these external variables may exert significant pressure or offer support to domestic futures prices.
• Evaluate the implications of decreasing ICE certified stocks, which suggest tighter immediate deliverable supply, against the fundamentally bearish positioning of large speculators and softer international price indicators.