On May 11, ICE cotton futures for July delivery settled at 87.77 cents per pound, up 3.04 cents or 3.59%, hitting the highest intraday level since April 2024. The rally reflects a confluence of improving demand expectations and cost-push factors.
Demand Optimism and Speculative Flows
The market's optimistic outlook for US cotton export demand is the primary driver. According to public CFTC data, speculative net long positions in ICE cotton futures and options surged by 12,977 contracts to 79,676 as of May 5, the highest in recent weeks. This indicates growing bullish sentiment among professional investors.
All eyes are now on the USDA World Agricultural Supply and Demand Estimates (WASDE) report due Wednesday. The report will provide updated official forecasts on global cotton stocks, production, and consumption. Any upward revision to US export projections could fuel further gains, while a downside surprise might trigger a correction.
Oil Price Spillover and Substitution Effects
Crude oil prices rose nearly 3% on Monday amid heightened geopolitical tensions in the Middle East. The ongoing uncertainty around the Strait of Hormuz has intensified supply concerns. Higher oil prices directly increase the production cost of polyester fiber, cotton's main synthetic substitute, thereby improving cotton's relative price competitiveness.
For textile mills, the cotton-polyester spread is a critical input for raw material blending decisions. If crude remains elevated, cotton's substitution advantage will strengthen over the next 2-4 weeks, providing additional price support.
Planting Progress and Fundamentals
USDA's weekly crop progress report showed that US cotton planting reached 29% as of May 10, ahead of last year's 27% but slightly below the five-year average of 28%. This suggests no significant acceleration in planting pace. Weather conditions in key producing regions, especially Texas, will remain a focus.
On the spot market, the Cotlook A index rose 185 points to 94.65 cents per pound, confirming the upward momentum across the supply chain. ICE deliverable stocks stood at around 182,000 bales, indicating limited physical delivery pressure.