Cotton Leaking on Friday Morning

Cotton futures are down across most contracts this Friday morning, following a decline on Wednesday; for example, December 25 Cotton closed down 88 points and is currently down 10 points. Wednesday's online sale via The Seam saw 1,610 bales sold at an average price of 66.13 cents/lb, while the Cotlook A Index decreased by 45 points to 78.30 on June 17. ICE cotton stocks increased by 120 bales, bringing the certified stocks level to 62,332 bales.

Analysis

Cotton futures markets are exhibiting continued weakness, with prices across most contracts declining by 10 to 65 points on Friday morning, extending the bearish momentum from Wednesday where futures fell by 21 to 88 points. For instance, the December 25 Cotton contract, which had previously closed down 88 points, is currently trading an additional 10 points lower. This price deterioration is corroborated by physical market indicators, such as the Cotlook A Index, which decreased by 45 points to 78.30 on June 17. ICE certified cotton stocks experienced a marginal increase of 120 bales, bringing the total to 62,332 bales, while The Seam reported 1,610 bales sold in its recent online sale at an average price of 66.13 cents/lb. Broader market factors include a significant drop in WTI crude oil to $73.34/barrel, which could lessen the competitive pricing pressure from synthetic fibers, and a slight decrease in the US dollar index to $98.245, a factor that typically supports commodity prices but has not reversed cotton's downward trend. The USDA’s Adjusted World Price (AWP) did register an increase to 54.02 cents/lb last Thursday, but this appears to be a lagging indicator in the face of more current negative price action.

Key Decisions for Investors

• Given the persistent downward pressure on cotton futures and strongly negative sentiment, investors should exercise heightened caution regarding bullish positions and consider re-evaluating exposure.
• Monitoring key technical support levels in futures contracts, alongside changes in ICE certified stock levels and the Cotlook A Index, will be crucial for identifying potential market bottoms or further weakness.
• The confluence of falling futures, a declining physical market index, and lower crude oil prices suggests that strategies aligned with continued price pressure or range-bound trading may be warranted until significant bullish catalysts appear.