Cotton Prices Have Bottomed, But Fundamentals Need to Improve for a Sustained Price Uptrend

Most raw commodity futures markets have been hit hard over the past two weeks by highly elevated risk aversion in the general marketplace. This sentiment has cleared out the speculative bulls from the raw commodity space. Worries about the U.S.-China trade war creating a global economic recession have been fully bearish for commodity markets, from a global demand perspective. Raw commodity sector leader crude oil (CLK25) saw its price drop to a four-year low of $55.12 a barrel last week.

Cotton Futures Bulls Show Keen Resilience and Bears Appear Exhausted

Cotton futures (KGK25) prices spiked last week to a nearly five-year low as the U.S. stock market plunged, prompting concerns that deteriorating consumer confidence would dampen demand for apparel in the coming months, while new U.S. tariffs would reduce global demand for the U.S. fiber. 

However, that price downdraft on April 9 saw cotton buyers quickly step in to push prices back up and close out the session higher and post a technically bullish “outside day” up on the daily bar chart. Last week’s price action in the cotton market does indeed suggest that the bears became exhausted at the lower price levels. This begins to suggest the market has put in a major price bottom.

While a price bottom may be in place for cotton futures, the market needs to see improved supply and demand fundamentals to sustain any price uptrend. 

Last week’s USDA monthly supply and demand report showed few changes in the domestic or world balance sheets from the March report. The agency did lower its U.S. export forecast by 100,000 bales, to 10.9 million, which puts the ending stocks forecast at 5 million bales. That’s the highest since 2019-20 and shows disappointing export demand that pushed U.S. prospective plantings to the lowest mark in a decade. 

USDA also reported last week U.S. cotton export sales of 117,800 running bales for the week ended April 3. That is down 14% from the previous week and down 27% from the four-week average. However, U.S. export shipments continue to be solid. For the cotton futures market to see a sustained price rally, weekly U.S. cotton export sales should be around the 300,000 running-bale mark, or above.

USDA last week left the national average on-farm cash cotton price steady with last month at $0.63.

Global cotton production was mostly unchanged in the April USDA report, at 120.9 million bales as a 250,000-bale increase in China was offset by marginal reductions elsewhere. China production is forecast at 32.0 million bales, the highest level in more than a decade and roughly 25% of the global 2024-25 crop. 

Meanwhile, world cotton consumption is forecast down more than 500,000 bales, to 116.0 million, on lower use in China. The U.S. is China’s largest export market for cotton products. The USDA said significantly higher U.S. import tariffs are expected to lower U.S. cotton demand. 

Global trade is forecast by the USDA to be down nearly 400,000 bales to around 42.3 million. Lower import forecasts for China and Indonesia more than offset higher Turkey imports. Lower exports from the United States, Brazil, Australia, and various West African countries more than offset higher shipments from Turkey. 

Global cotton ending stocks are expected to rise more than 500,000 bales, to 78.9 million with larger carryover in China. 

USDA in late March forecast U.S. cotton planted acres down 12% from last year. Upland area is estimated by the agency at 9.71 million acres, with American Pima area estimated at 157,000 acres. Cotton acres in Texas are forecast to decline by 456,000 acres, to 5.527 million. 

What to Watch for a Cotton Futures Market Price Rally

There are some bullish and potentially bullish market fundamentals that would likely spark a significant rally in cotton prices — especially with the market being recently beaten down to what could be argued as value-buying price levels, historically.

• The U.S. Dollar Index ($DXY) last hit a three-year low last week and continues to see a price downtrend in place. That’s friendly for the cotton futures market because it makes the U.S. cotton market price competitive on world trade markets. Most global raw commodity trading is conducted in U.S. dollars.

• U.S. and global interest rates are likely to decline in the coming months, or longer, due to concerns about slowing U.S. and global economic growth. Lower interest rates mean better consumer confidence and in turn, improved demand for apparel.
• The resilience in the grain futures markets just recently, amid the elevated risk aversion in the general marketplace, is also a bullish element for the cotton market.

• The expected lower U.S. planted cotton acres this year means the crop needs to perform well during the growing season. Weather in Texas cotton regions will be closely monitored in the coming few months. And the weather in U.S. cotton country is not starting out ideal for the crop. Weather reports say west and south Texas conditions will be dry over the next couple weeks. Rain is needed in those regions. Meantime, too much rain in the U.S. Delta recently has delayed field work. Don’t be surprised to see some degree of a weather-market rally in cotton futures in the next few months.

My bias is that the cotton futures market has absorbed most of the bearish fundamentals and they are already factored into futures prices. That opens the door for a summertime rally in cotton futures pric