There has been little to write about the cotton futures market since I last published a Barchart article on May 15, which in Cotton- 80 cents is a Pivot Point. The mid-May 2023 article concluded:
I am not looking for significant price moves in the cotton market over the coming weeks and months, and I will trade the range, buying when the price dips below 80 cents on a scale-down basis and taking profits when cotton moves away from 80. cents on the upside.
Nearby cotton futures were at 82.74 cents a pound on May 15, and the March 2024 contract was just below 81 cents on November 24. With 2024 on the horizon and the bullish price action in the other soft commodities, we could see cotton prices rising as a seasonal trend. strength will emerge during the first half of next year.
Cotton prices were going nowhere fast
The weekly chart of ICE cotton futures shows the narrow trading range in 2023.
The diagram shows the trading range of 79.80 to 90.75 cents over the last nearly eleven months. At just under 81 cents a pound on November 24, cotton futures sat near the lower end of a very tight trading range.
Seasonality could affect cotton as spring 2024 approaches
The monthly chart shows that seasonal highs in the cotton futures tend to occur during spring.
The monthly chart illustrates that price peaks in 2011, 2014, 2018 and 2022 came in March to May. Spring is when uncertainty about the year’s harvest reaches a maximum.
The latest fundamental data for the cotton market came from USDA’s November World Agricultural Supply and Demand Estimates report.
The WASDE showed that US and global cotton inventories rose from the October report.
Levels to watch in the cotton futures market
When 2023 ends, 80 cents and 90 cents per pound are the technical support and resistance levels. The monthly chart has an upside gap of 98.70 cents to $1.0124 per pound. Long-term technical support is at the 2022 70.21 cents per pound low.
Seasonality is critical in the cotton futures. We could get an indication of the path of least resistance for prices in early 2024. Meanwhile, the price action in the other soft commodities continues to favor the upside.
The complex of soft goods says higher
While each soft commodity has individual supply and demand fundamentals and technical paths, the sector has been bullish fire over the past few years. Cotton rose to its highest price since 2011, when it rose to $1.5802 per pound in May 2022. The cotton futures market sold out below the 2011 record of $2.27 per pound.
In February 2022, Arabic coffee grounds rose to $2.6045 per pound, the highest price since 2011, when they fell. However, European Robusta futures reached a record $2,976 per ton in June 2023. World sugar number 11 futures reached 28.14 cents per pound in November 2023, the highest price since 2011. Sugar number 16 futures rose to a record 45.75 cents per pound in November 2023. In November 2023, close ICE cocoa futures moved above the $4,200 per ton level for the first time since 1977. ICE FCOJ futures traded above $4.30 per pound, an all-time high, in October 2023.
The price action in the soft goods sector could suggest that cotton’s next move is higher.
No ETFs or ETN futures are the only option
Since the BAL ETN product ceased trading in 2023, no ETF or ETN products track cotton prices, leaving the only avenue for investment or speculative risk positions in the futures market. As of November 22, the total number of open long and short positions in cotton was over 190,000 contracts. Cotton is much more liquid than FCOJ but less liquid than sugar and cocoa. The open interest in coffee futures was around the same level.
With cotton consolidating between 80 and 90 cents, it was near the lower end of its trading range on November 27. If cotton follows the rest of the soft goods sector, 81 cents per pound could be a bargain for those patient traders and investors looking to. take advantage of seasonal strength over the coming months.
More Softs News from Barchart
As of the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information, please see Barchart’s Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.